Why does basis risk occur?Question 1Answera.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 positionc.Spot and futures contracts are traded in different markets with different demand and supply functionsd.Answers B and C only.e.Answers A and C only.

Which of the following is a potential cause for basis risk:Group of answer choicesThe asset underlying the futures is not identical to the asset to be hedged.All the aboveThe futures price is marked to market.The maturity of the futures contract does not match the maturity of the hedge.Both (b) and (c)

The basis is defined as spot minus futures. A trader is hedging the purchase of an asset with a futures position. The basis decreases unexpectedly. Which of the following is TRUE? Select one alternative The hedger’s position sometimes worsens and sometimes improves. The hedger’s position improves. The hedger’s position stays the same. The hedger’s position worsens.

In futures markets investors who expect to purchase future bonds can reduce the risk of price fluctuations by taking a/an:Question 8Select one:a.arbitrage position on futures contracts.b.long position on futures contracts.c.short position on futures contracts.d.marked-to-market position on futures contracts.

Which of the following best describes the risks associated with futures contracts?Question 10Select one:a.The variability of changing prices and costs associated with buying and selling futures contractsb.The possibility of making an unexpected profit on a futures contractc.The probability of making a loss, or a fall in the value of a futures contractd.The possibility of loss associated with the default by the holder of the opposite position in the contract

_________ take positions in futures to reduce their risks related to future movements in interest rates or stock prices.Select one:a. Speculatorsb. Position tradersc. Day tradersd. Hedgers