As the time of settlement gets closer:
A) the price of the futures contract will diverge from the price of the underlying asset.
B) the price of the futures contract will always be above the price of the underlying asset.
C) the price of the underlying asset and the future's price will show no correlation at all.
D) the price of the futures contract will move in lockstep with the price of the underlying asset.

Question

Quizplus · Accepted Answer

The price of the futures contract will move in lockstep with the price of the underlying asset. As the settlement date approaches, the futures price and the spot price (price of the underlying asset) will converge to the same price. This is because the futures contract is designed to mirror the price movements of the underlying asset, so as the price of the asset changes, the price of the futures contract changes in the same direction.

As the Time of Settlement Gets Closer