An adjustment for basis risk with a value of "br" less than one means that the percent change in the spot rates is greater than the change in rate in the deliverable bond in the futures market.

Question

Quizplus · Accepted Answer

A value of "br" less than one indicates that the futures contract is not a perfect hedge for the underlying bond, resulting in a higher percentage change in spot rates compared to the change in the rate of the deliverable bond. This represents basis risk, which can lead to potential losses for the investor.

An Adjustment for Basis Risk with a Value of "Br