Commodity futures pricing
A) must be related to spot prices.
B) includes cost of carry.
C) converges to spot prices at maturity.
D) All of the options are correct.
E) None of the options.

Question

Quizplus · Accepted Answer

All the options are correct regarding commodity futures pricing. Futures prices must be related to spot prices to ensure no arbitrage opportunities. They include the cost of carry, which encompasses storage costs, insurance, and interest costs. As the futures contract approaches its maturity, the futures price converges to the spot price, eliminating the cost of carry as a factor.

Commodity Futures Pricing