Negative versus Positive Cross Currency Basis

CFA Level III Derivatives
#1

I’m confused about terminology, specifically when a cross-currency swap is considered to have “positive” or “negative” basis. In particular, these 2 sections in the curriculum appear (to me) to contradict each other:

Reading 9 Page 98 - The first paragraph refers to a US investor and says when the basis is “negative”… when USD demand is strong relative to Yen, thus borrowing in USD is higher relative to Yen, making lending USD particularly attractive

Practice Problem #5 on page 124 refers also to a US investor…again USD demand stronger relative to Euros, but now the curriculum calls this “positive basis” for ‘lending’ USD.

What am I missing here?

#2

When basis is positive, USD is stronger.

The basis is adjusted to foreign floating interest.

#3

Thanks. So does that mean pg 98 is incorrectly stated?

#4

Eur-USD basis is positive, you add to Eur rate.

Now if the above basis is positive for EUR base, the for US it is negative.

Depends on what they are referring to

Also basis is diff b/w floating USD and synthetic forward.