Explain the basis riskbasis risk considers to the floating, Ask an Expert

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Explain the Basis Risk

Basis risk considers to the floating rates of two counterparties being pegged to two dissimilar indices. In this situation, as the indexes are not completely positively correlated, the swap bank may not all the time receive enough floating rate funds from one counterparty to pass via to satisfy the other side where as still covering its desired spread, or avoiding a loss.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M9544885

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