The spot price on cocoa is $1,480 a ton. The futures price is $1,478. The basis is ________ and the market is a(n) ________ market.
A) -20; carrying-charge
B) -20; inverted
C) 2; carrying-charge
D) 2; inverted
E) 20; carrying-charge

Question

Quizplus · Accepted Answer

Basis = Futures price - Spot price
Basis = $1,478 - $1,480
Basis = -$2
Since the basis is negative, it indicates an inverted market. Therefore, the correct choice is D) 2; inverted.

The Spot Price on Cocoa Is $1,480 a Ton