The risk that arises because the value of the futures contract will not be perfectly correlated with the firm's exposure is called:
A)commodity price risk.
B)basis risk.
C)liquidity risk.
D)speculation risk.

Question

Quizplus · Accepted Answer

Basis risk arises because the value of the futures contract may not perfectly offset the firm's exposure due to variances in timing, quantity, quality, or location of the underlying asset.

The Risk That Arises Because the Value of the Futures