Which of the Following Statements Is True

Multiple Choice

Which of the following statements is true?

A) Basis risk arises because loan rates and deposit rates are not perfectly correlated in their movements over time
B) Basis risk arises because loan rates and deposit rates are perfectly correlated in their movements over time
C) Basis risk arises because loan rates and deposit rates always move in the same direction over time
D) FIs are not subject to the basis risk