Assuming a futures contract is correctly price, according to the spot-futures parity relationship, an increase in the risk-free rate of interest will:
A) increase the futures price.
B) decrease the futures price.
C) not change any futures price.
D) increase commodity futures prices but not financial futures prices.
E) increase financial futures prices but not commodity futures prices.

Question

Quizplus · Accepted Answer

The spot-futures parity relationship implies that the futures price increases with an increase in the risk-free rate of interest. This is because the cost of carrying or holding the underlying asset until the future date (which includes the opportunity cost represented by the risk-free rate) increases, thus increasing the futures price.

Assuming a Futures Contract Is Correctly Price, According to the Spot-Futures