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 future's price is equal to the price of the underlying asset. This is because the purpose of the futures market is to allow for the transfer of risk between buyers and sellers, and at the settlement date, the agreed-upon price is paid and the underlying asset is delivered, resulting in the contract being settled with no further risk or uncertainty. Therefore, the future's price must be equal to the price of the underlying asset in order for the transaction to be completed as agreed.

On the Settlement Date of a Futures Contract