The price of a corn futures contract is $2.65 per bushel when the contract is issued and the commodity spot price is $2.55.When the contract expires,the two prices are identical.What principle is represented by this price behavior?
A) Convergence
B) Margin
C) Basis
D) Volatility

Question

Quizplus · Accepted Answer

Convergence is the principle represented by this price behavior. In commodity futures trading, convergence means the process by which the futures price and the spot price of a commodity approach each other as the delivery date of the futures contract approaches. In this case, the futures price of corn converged with the spot price at the expiration of the contract, resulting in both prices being identical.

The Price of a Corn Futures Contract Is $2