If market participants believe that the wheat crop is likely to be unusually small,
A)the spot price of wheat is likely to be above the futures price of wheat.
B)the spot price of wheat is likely to be below the futures price of wheat.
C)it will not be possible to find a seller of a futures contract in wheat.
D)it will not be possible to find a buyer of a futures contract in wheat.

Question

Quizplus · Accepted Answer

If market participants anticipate a smaller wheat crop, they expect future scarcity and higher prices. Consequently, the futures price of wheat would likely increase in anticipation of this scarcity, making it higher than the current spot price. This reflects the market's expectation of a tighter supply and higher prices in the future.

If Market Participants Believe That the Wheat Crop Is Likely