On the expiration date of a futures contract,the price of the contract converges to the
A)purchase price of the contract.
B)average price over the life of the contract.
C)price of the underlying asset.
D)average of the purchase price and the price of the underlying asset.

Question

Quizplus · Accepted Answer

On the expiration date of a futures contract, the price of the contract converges to the price of the underlying asset. This is known as the "cash settlement price." This is because the purpose of a futures contract is to allow buyers and sellers to hedge or speculate on the future price of the underlying asset. Once the contract expires, the parties involved must settle the contract by either buying or selling the underlying asset at the "cash settlement price." Therefore, the price of the futures contract will converge to the price of the underlying asset at expiration.

On the Expiration Date of a Futures Contract,the Price of the Contract