The spot price on prune juice is 165.25 cents per pound. The futures price is 168.50. The basis is ________ and the market is a(n)________ market.
A)−3.25; carrying-charge
B)−3.25; inverted
C)−2.75; inverted
D)3.25; carrying-charge
E)3.25; inverted

Question

Quizplus · Accepted Answer

Basis = futures price - spot price
Basis = 168.50 - 165.25
Basis = -3.25
The negative basis indicates that the futures price is lower than the spot price and hence, it is a carrying-charge market where the futures price is less than the expected spot price.

The Spot Price on Prune Juice Is 165