Which of the following statements about basis risk is incorrect?
A) The basis must be zero on the maturity date of the contract.
B) The basis fluctuates in predictable patterns.
C) The basis is calculated as the cash price minus the futures price.
D) Due to basis risk, perfect hedging is very difficult.

Question

Quizplus · Accepted Answer

Basis risk arises because the basis (the difference between the cash price and the futures price) does not always move in predictable patterns. It can fluctuate due to various factors, making it a source of risk in hedging activities.

Which of the Following Statements About Basis Risk Is Incorrect