As the delivery date specified in the futures contract draws nearer:
A) The gap between the futures and spot prices for the same asset narrows
B) The basis between the futures and spot prices for the same asset narrows
C) The spot and forward price becomes equal at the specified contract date
D) All of the above
E) None of the above

Question

Quizplus · Accepted Answer

As the delivery date of a futures contract approaches, the futures price and the spot price of the asset tend to converge. This is because the futures contract price incorporates expectations about the future spot price, and as the delivery date nears, there is less uncertainty about what the spot price will be. This convergence is referred to as the basis narrowing, and at the contract's expiration, the futures and spot prices should theoretically be equal, assuming no arbitrage opportunities.

As the Delivery Date Specified in the Futures Contract Draws