The risk of unexpected change in the relationship between currency futures prices and currency spot prices is called ______.
A) basis risk
B) currency risk
C) exchange rate risk
D) interest rate risk
E) None of the above

Question

Quizplus · Accepted Answer

Basis risk refers to the risk of unexpected changes in the relationship between currency futures prices and currency spot prices. It is caused by factors such as changes in supply and demand in the market, unexpected events or news that affect the currency markets, and other factors that can lead to changes in the prices of currency futures contracts and spot prices. Currency risk, exchange rate risk, and interest rate risk are related but different types of risks that are not directly related to the relationship between currency futures prices and currency spot prices.

The Risk of Unexpected Change in the Relationship Between Currency