As a futures contract approaches the delivery month,
A) most contracts are delivered early.
B) open interest rises.
C) reversing transactions decrease.
D) open interest declines.

Question

Quizplus · Accepted Answer

As a futures contract approaches the delivery month, many market participants will close out their positions rather than take physical delivery of the underlying asset. This can lead to a decline in open interest as fewer contracts remain outstanding. Additionally, reversing transactions are likely to increase as traders seek to exit or offset their positions. Therefore, the correct answer is D, open interest declines.

As a Futures Contract Approaches the Delivery Month