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) Answers B and C only.
E) Answers A and C only.
Correct Answer:
Verified
Correct Answer:
Verified
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