What reflects the degree to which the rate on the option's underlying asset moves relative to the spot rate on the asset or liability that is being hedged?
A)Credit risk.
B)Basis risk.
C)Hedge risk.
D)Volatility.

Question

Quizplus · Accepted Answer

Basis risk reflects the degree to which the rate on the option's underlying asset moves relative to the spot rate on the asset or liability that is being hedged. Credit risk refers to the risk of default by the counterparty. Hedge risk is a general term used to describe the various risks associated with hedging activities. Volatility refers to the degree of variation in the price of an asset over time.

What Reflects the Degree to Which the Rate on the Option's