The spot price on orange juice is 121.55 cents per pound. The futures price is 124.30. The basis is ________ and the market is a(n)________ market.
A)−2.75; carrying-charge
B)−2.75; inverted
C)1.75; inverted
D)2.75; carrying-charge
E)2.75; inverted

Question

Quizplus · Accepted Answer

Basis = spot price - futures price
Basis = 121.55 - 124.30 = -2.75
A negative basis indicates that the spot price is lower than the futures price, which is consistent with a carrying-charge market where there are costs associated with storing the commodity.

The Spot Price on Orange Juice Is 121