Which of the following statements about basis risk is incorrect?
　　A. An airline company hedging exposure to a rise in jet fuel prices with heating oil futures contracts may face basis risk.
　　B. Choices left to the seller about the physical settlement of the futures contract in terms of grade of the commodity, location, chemical attributes may result in basis risk.
　　C. Basis risk exists when futures and spot prices change by the same amount over time and converge at maturity of the futures contract.
　　D. Basis risk is zero when variances of both the futures and spot process are identical and the correlation coefficient between spot and futures prices is equal to one.
　　Correct answer：C
　　Explanation:
　　Statement a is incorrect: as it is a correct statement: An Airline company hedging jet fuel with heating oil futures may face basis risk due to difference in the underlying assets.
　　Statement b is incorrect: as it is a correct statement: optionalities left to the seller at maturity gives the seller flexibility resulting in the buyer of the contract facing basis risk. Statement c is correct: as it is an incorrect statement: Basis risk exists when futures and spot prices do not change
　　by the same amount over time and possibly will not converge at maturity of the futures contract.
　　Statement d is incorrect: as it is a correct statement: The magnitude of basis risk depends mainly on the degree of correlation between cash and futures prices. If the correlation is one then by definition there is no basis risk.