Which of the following is an argument used by Keynes and Hicks?
A) If hedgers hold long positions and speculators holds short positions, the futures price will tend to be higher than expected future spot prices
B) If hedgers hold long positions and speculators holds short positions, the futures price will tend to be lower than expected future spot prices
C) If hedgers hold long positions and speculators holds short positions, the futures price will tend to be lower than today's spot prices
D) If hedgers hold long positions and speculators holds short positions, the futures price will tend to be higher than today's spot prices

Question

Quizplus · Accepted Answer

If hedgers hold long positions and speculators holds short positions, the futures price will tend to be higher than expected future spot prices. This is because hedgers are buying futures contracts to protect themselves against the risk of rising spot prices, while speculators are selling futures contracts in the hope of profiting from falling spot prices. The competition between hedgers and speculators will drive the futures price up to a level that reflects the expected future spot price plus a premium for risk.

Which of the Following Is an Argument Used by Keynes