__________ occurs when the futures price is bid up or down to the spot price plus carrying costs as the expiration date draws close.
A)Convergence
B)Hedging
C)Strike pricing
D)Program trading

Question

Quizplus · Accepted Answer

Convergence occurs as the expiration date draws closer and futures prices adjust to the spot price plus carrying costs, eliminating any arbitrage opportunity. This is an important concept in the futures market as it ensures that prices are efficient and reflects the underlying asset's market value. Hedging is a risk management strategy that involves taking an offsetting position in a related asset to reduce the risk of price movements. Strike pricing is the price at which an option can be exercised. Program trading is a type of trading that involves the use of computer algorithms to execute trades quickly and efficiently. None of these choices relate to the definition given.

__________ Occurs When the Futures Price Is Bid Up or Down