- basis risk
- The risk to a holder of financial instruments that a change in prevailing interest rates will not affect the prices of or yields on similar instruments in exactly equal amounts. For example, an increase in prevailing interest rates might raise 3-month U.S. Treasury yields by 100 basis points while 3-month certificate of deposit yields go up by only 85 basis points. One of the four primary components of interest rate risk.
__Sometimes called__spread risk.__American Banker Glossary__————Unexpected changes in the basis between the placing and the lifting of a hedge. Basis risk is in excess of convergence.__Bloomberg Financial Dictionary__————The basis for a particular product does not necessarily stay constant - changes in basis can occur for a variety of reasons. Such changes can cause either a profit or loss to be incurred by the holder of the product and thus constitute a risk. Basis risk can mean that a person using futures to hedge an underlying cash position cannot obtain a perfect hedge, where profits on one side of the hedge exactly offset losses on the other.__Dresdner Kleinwort Wasserstein financial glossary____See also__basis and basis trading.__Dresdner Kleinwort Wasserstein financial glossary__* * *

The risk that the price of a future will vary from the price of the underlying cash instrument as expiry approaches.►*See also*Convergence.

*Financial and business terms.
2012.*