CAF-7 · Chapter 10 · Question 9 of 15
In financial hedging using futures, what is meant by 'basis risk'?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The risk that the spot price and the futures price will not move exactly together, causing an imperfect hedge
Explanation
Basis is the difference between the current spot price and the futures price. Basis risk occurs because these two prices do not always move in perfect synchronization, meaning the future hedge might not perfectly offset the real-world loss.
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