Okuzeka
Finance & Banking vocabulary · Risk Management

Basis risk

Meaning in finance & banking, with examples

nounAdvanced term

In finance & banking, basis risk means: The risk that two related prices or rates used in a hedge do not move together as expected.

In Turkish: baz riski

How it is used

Identify the two references; even a closely related hedge can leave a mismatch.

Example sentences

  1. The loan and hedge used different benchmarks, creating basis risk.

    Different benchmark movements prevent a complete offset.

  2. The fuel hedge retained basis risk because local prices diverged from the futures price.

    Related markets can separate despite sharing a broad trend.

Common collocations

  • manage basis risk
  • basis risk exposure
  • hedgeTo reduce the risk of losing money from changes in prices, interest rates or exchange rates, usually by taking an opposite position with derivatives.
  • market riskThe risk of losses caused by changes in market prices, such as interest rates, exchange rates, share prices and commodity prices.

More terms: Risk Management

Practise with graded reading

Reading at the right level is the fastest way to make new words stick. Pick free English books by level:

This page explains English vocabulary for learners. It is not financial advice.