Consider a buyer of crude oil who wants to hedge its purchase price in October. The firm buys December futures contracts on oil and will unwind the hedge in October. The firm will buy the same type of oil in the same delivery location as specified in the futures contract. Which of the following is a relevant source of basis risk?

1. Changes in oil prices.

2. Changes in the storage cost of oil.

3. Changes in the riskless interest rate.

4. Changes in the convenience yield for oil.

Answer rating: 100% (QA)

The detailed answer for the above question is provided below The relevant source of basis risk in th... View the full answer