Spot-futures parity defines the market situation that exists when
A) No arbitrage opportunities exist.
B) Futures prices equal spot prices.
C) Cash prices are higher than futures prices.
D) The number of potential buyers equals the number of potential sellers.
E) No marginal calls are required during a trading day.

Question

Quizplus · Accepted Answer

Spot-futures parity is a foundational concept in finance that describes a situation where there are no arbitrage opportunities between the spot and futures markets. This occurs when the price difference between a futures contract and the spot price of the underlying asset is exactly equal to the cost of carry (the cost associated with holding the underlying asset until the delivery date of the futures contract). This ensures that investors cannot make a risk-free profit by simultaneously buying in one market and selling in the other.

Spot-Futures Parity Defines the Market Situation That Exists When