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Basis risk occurs because changes in the spot asset's price are not perfectly correlated with changes in the price of the asset delivered under a
Basis risk occurs because changes in the spot asset's price are not perfectly correlated with changes in the price of the asset delivered under a forward or futures contract. the equilibrium spot and futures contracts are often mispriced due to illiquid markets. the daily marking-to-market process enables an Fl manager to close out a futures position by taking an exactly offsetting position. spot and futures contracts are traded in the same market, and they have the same demand and supply functions
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