As time draws closer to contract expiration, futures contract prices can be expected to:
A)increase as the demand for delivery intensifies.
B)decrease as speculators resolve the uncertainty of prices.
C)move similarly to broad-based market indices, such as the TSX 300
D)converge upon the spot price.

Question

Quizplus · Accepted Answer

As the expiration date approaches, futures contract prices will converge upon the spot price. This is because there is less uncertainty about the price of the underlying asset, and the futures price should closely reflect the expected spot price at the time of delivery. Option A may be true in some cases, but it depends on the specific market conditions and demand for the underlying asset. Option B is not necessarily true, as speculators may continue to trade futures contracts up until expiration. Option C is not necessarily true, as futures prices may deviate from broad-based market indices depending on the specific factors affecting the underlying asset.

As Time Draws Closer to Contract Expiration, Futures Contract Prices