The difference between the current spot price of an asset and the corresponding futures price is known as the ___ for the futures.
A) spread
B) cost of carry
C) basis
D) index arbitrage

Question

Quizplus · Accepted Answer

The difference between the spot price and the corresponding futures price is known as basis. It represents the cost of carrying the underlying asset until the future delivery date and can be positive or negative depending on various factors such as supply and demand, storage costs, interest rates, and so on. The spread refers to the difference between the bid and ask prices of a security, while the cost of carry relates to the expenses associated with holding an asset (such as storage, financing, and insurance costs). Index arbitrage, on the other hand, involves exploiting price differences between the futures and cash markets of a given index.

The Difference Between the Current Spot Price of an Asset