Question: Basis risk refers to the risk: Select one: a associated with anticipated price movements in the cash market. b. associated with unanticipated price movements on the underlying asset. O c. of default on the futures contract.

Question: Explain what is meant by basis risk when futures contracts are used for hedging. Next, make a comparative analysis between basis risk in futures contracts and credit risk in forward contracts. Last, compare the liquidity issue in futures and forward contracts.

What is meant by “basis risk” when futures contracts are used for hedging. (Please explain in words.) 2. Suppose that the standard deviation of quarterly changes in the prices of a commodity is $0.77, the standard deviation of quarterly changes in a futures price on the commodity is $0.89, and the coefficient of correlation between the two changes is 0

Question: Basis risk refers to the risk: A. associated with anticipated price movements in the cash market. B. associated with unanticipated price movements on the underlying asset. C. of default on the futures contract.

Question: Which of the following best describes basis risk? The risk that the basis collapses from a lack of liquidity. The risk that hedging can lead to a worse outcome. Uncertainty over the worsening of a hedgers poition. Concern over the difference between the spot and futures prices at the expiration of a hedge.

basis risk b. liquidity risk c, market risk d. postpayment risk 16. A price within a specified period of time. grants the owner the right to purchase a specified financial instrument for a specified a. call option b. put option c. sale of a futures contract d. purchase

3. Basis risk: A short hedge for a cor grower. The expected basis is 5-0.30 Date Cash Futures 1-Oct C ost of Production $6.00 May Futures $6.40 (A) What is the forward price? (B) What is the expected profit margin? = 1-Oct Sell May Futures @ $6.40 10-May ! Sell Cash @ $5.70 Buy May Futures @ $6.10 (C) What is actual basis on May 10th?

Risk of the adverse movements of the underlying asset Risk related to changes in option prices The uncertainty that the basis of a forward contract will change resulting in a profit or loss. uiz consists of 3 multiple choice questions on topic 2 lecture material.

What is basis risk? What are the sources of basis risk? How would your answer for part (b) in problem 3 change if the relationship of the price sensitivity of futures contracts to the price sensitivity of underlying bonds were br = 0.92?

Homework 3:2 (Chapter 3) Name: ID: Please SHOW YOUR WORK 3. Basis risk: A short hodige for a corn grower. The expected basis is S-0230. And the actual basis is 5-0.40) Date Cash Futures Cost of Production $6.00 May Futures. $6.40 (A) What is the forward price? 1B) What is the expected profit marsin?