"Basis" risk may arise in a hedging situation if
A)The expiry date of the futures contract and the date on which the hedge is unwound do not coincide.
B)The futures contract used for hedging relates to a commodity that is somewhat different than that being hedged.
C)A disconnect between spot and futures markets causes the failure of the convergence of futures to spot at expiry of the futures contract.
D)All of the above.

Question

Quizplus · Accepted Answer

While (c)is not mentioned explicitly in the text,it evidently causes uncertainty in the cash flows of the hedged position.

"Basis" Risk May Arise in a Hedging Situation If