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Basis risk vs cross-hedging risk

G

GeorgeFS

Keen member
Hi,

I'm struggling a bit with trying to separate out basis risk and cross-hedging risk in my head - I kind of feel like they are saying the same thing...

Basis risk = risk that the difference between the price of hedging instrument and the spot price of asset being hedged changes over time
Cross-hedging risk = the risk that the asset underlying the contract and the actual exposure don't move in the same way.

Would anyone be able to provide an explanation of how they are different?

Thanks,
G
 
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