Which of the following can explain a contango? a. futures prices exceed forward prices b. the...
Which of the following can explain a contango?
|
a. |
futures prices exceed forward prices |
|
|
b. |
the cost of carry is negative |
|
|
c. |
when spot prices and futures prices dance around each other over time |
|
|
d. |
excess current supply causes the spot price to be less than the futures price |
|
|
e. |
none of the above |
Homework Answers
Contango Situation Describes When Future Prices Higher than the Spot Price.
Option a: futures prices exceed forward prices:(False) Difference between futures & forward price occurs due to facility of exchange trading in futures. But it does not affect spot price.
Option b: the cost of carry is negative:(False) If the cost of carry is negative future price will be less than the spot price.
Option c: when spot prices and futures prices dance around each other over time:(False) It does not confirm that future price will be always higher than the spot price.
Option a: excess current supply causes the spot price to be less than the futures price :(True) If current supply is excess spot price will be always lesser than future price.
Contango Situation
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