Multiple Choice
Why does basis risk occur?
A) Changes in the spot asset's price are not perfectly correlated with changes in the price of the asset delivered under a forward or futures contract.
B) The daily marking-to-market process enables an FI manager to close out a futures position by taking an exactly offsetting position.
C) Spot and futures contracts are traded in different markets with different demand and supply functions.
D) None of these.
E) Changes in the spot asset's price are not perfectly correlated with changes in the price of the asset delivered under a forward or futures contract, and spot and futures contracts are traded in different markets with different demand and supply functions.
Correct Answer:
Verified
Correct Answer:
Verified
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