Basis risk

With a futures hedge, basis commonly means the difference between spot and futures prices under a stated sign convention; uncertainty over that difference when the hedge is closed creates basis risk. In interest-rate management, basis risk can arise when borrowing and investment or hedge rates follow different reference benchmarks and their spread changes. A matched notional amount alone does not remove either form. Analyse the underlying, maturity, reset dates and benchmark, and avoid mixing the two meanings without context. A hedge can reduce overall risk while leaving basis exposure.