What is basis risk?
What will be an ideal response?
The basis is the difference between the price of the futures contract at time t, for a particular maturity in the future, and the spot rate at time t. At the maturity date, the basis is zero. If the maturity of your foreign currency asset or liability does not match a settlement date in the futures market, the relationship between the spot exchange rate at the time the transaction takes place and the futures price of the foreign exchange is somewhat uncertain (as the basis is not zero). To provide a perfect hedge, the price of the futures contract should move one-for-one with the spot exchange rate. Then, being long in the foreign currency from an underlying transaction can be hedged by going short in the corresponding futures contract. If this is not the case, the hedge is said to suffer basis risk.
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Which of the following would be covered under Coverage A Dwelling of a Homeowners policy?
A) Vandalism of a vacant dwelling occurring after 90 days of vacancy. B) Damage to land on which the dwelling is located. C) Materials and supplies used to repair, alter or construct the dwelling located within 100 feet of the dwelling. D) Theft from a dwelling under construction before the dwelling is occupied.
Under the direct write-off method of accounting for uncollectible accounts, Bad Debt Expense is debited
A. when a credit sale is past due B. at the end of each accounting period C. when an account is determined to be uncollectible and is written off D. whenever a predetermined amount of credit sales have been made