When F_0,T E(S_T) it is known as A)Backwardation. B)Normal backwardation. C)Normal contango. D)Inverted spread. E)Pure expectations equilibrium.

Question

When F_0,T > E(S_T) it is known as A)Backwardation. B)Normal backwardation. C)Normal contango. D)Inverted spread. E)Pure expectations equilibrium.

Quizplus · Accepted Answer

Normal contango refers to a situation where the future spot price is expected to be higher than the current spot price. This is indicated by the fact that the forward price (S_T) is less than the current spot price (F_{0, T}). Therefore, C is the best choice.

When F0,T > E(ST) It Is Known as

When F_0,T > E(S_T) It Is Known as