On the settlement date of a futures contract:
A) the future's price is always above the price of the underlying asset.
B) the future's price is always below the price of the underlying asset.
C) the future's price is equal to the price of the underlying asset.
D) the future's price may be above or below the price of the underlying asset but not equal to it.

Question

Quizplus · Accepted Answer

On the settlement date of a futures contract, the futures price is settled at the price of the underlying asset, hence the futures price is equal to the price of the underlying asset. This is known as convergence. The futures price may be above or below the price of the underlying asset on any other day prior to the settlement date, but on the settlement date, it will always be equal to the price of the underlying asset.

On the Settlement Date of a Futures Contract