As a contract approaches maturity, the spot price and forward price
A) increase.
B) diverge.
C) maintain a fixed price differential.
D) have a random relationship.
E) converge.

Question

Quizplus · Accepted Answer

As a contract approaches maturity, the spot price and the forward price tend to converge. This is because the forward price is determined by expectations of the spot price at maturity, and as the maturity date approaches, those expectations become more certain, causing the forward price to move closer to the spot price.

As a Contract Approaches Maturity, the Spot Price and Forward