Which one of the following statements regarding "basis" is true?I) The basis is the difference between the futures price and the spot price.II) The basis risk is borne by the hedger.III) A short hedger suffers losses when the basis decreases.IV) The basis increases when the futures price increases by more than the spot price.
A) I only
B) II only
C) III only
D) IV only
E) I, II, and IV.

Question

Quizplus · Accepted Answer

I) The basis is indeed the difference between the futures price and the spot price. II) Basis risk, the risk that the basis will change unfavorably, is indeed borne by the hedger. IV) The basis increases when the futures price increases by more than the spot price, as the basis is the difference between these two prices.

Which One of the Following Statements Regarding "Basis" Is True?I)