The futures market and the cash market for an asset are tied together by an equilibrium process.

Question

Quizplus · Accepted Answer

The futures market and the cash market for an asset are connected through the process of arbitrage, which helps to maintain an equilibrium price between the two markets. When the futures price deviates from the cash price, arbitrageurs will enter the market to buy or sell the asset in order to take advantage of the price discrepancy and bring the prices back in line with each other. This process helps to ensure that the futures and cash markets remain connected and in equilibrium with each other.

The Futures Market and the Cash Market for an Asset