Select the CORRECT statement regarding basis risk associated with futures.
A)Basis risk can be completely eliminated.
B)Although the basis fluctuates over time,it can be precisely predicted.
C)The basis must be zero on the maturity date of the contract.
D)A hedge will reduce risk as long as basis fluctuations are positive.

Question

Quizplus · Accepted Answer

The basis, which is the difference between the spot price and the futures price, must be zero on the maturity date of the contract because the futures price converges to the spot price at expiration.

Select the CORRECT Statement Regarding Basis Risk Associated with Futures