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 time of settlement gets closer. The futures price and the underlying asset price should converge at the time of settlement. This is because the futures contract is designed to provide a price hedge for the underlying asset, and the futures price should reflect the expected price of the underlying asset at settlement.

As the Time of Settlement Gets Closer