Which of the following is true when F ?,T

Question

Which of the following is true when F ?,T < E(S T )?
A) Occurs when long hedgers outnumber short hedgers.
B) Occurs when short hedgers outnumber long hedgers.
C) The market is said to be in contango.
D) The market is said to be in normal contango.
E) The pure expectations hypothesis holds.

Quizplus · Accepted Answer

When TS1U1B0 (the number of short hedgers) outnumber FS1U1B1₀ (the number of long hedgers), the market is said to be in backwardation. In this scenario, the current price of the commodity is higher than its expected future prices, indicating a shortage of the commodity in the market. This condition is also indicated by the fact that the current spot price is higher than the future price, i.e., TS1U1B0 < E(SS1U1B1TS1U1B0). Therefore, option B is the correct answer.

Which of the Following Is True When F?,T < E(ST)

Which of the Following Is True When F_?,T < E(S_T)