What is basis risk in hedging with futures, and how can it be minimized?

• A. The risk that a hedge using futures tracks perfectly the exposure.
• B. The risk that hedges create excess liquidity.
• C. The risk that a hedge does not perfectly track the exposure; minimize by broad-based futures, dynamic hedge ratios, and cross-hedges.
• D. The risk that futures expire before exposure ends.

Answer: (C)