Futures contracts are said to exhibit the property of convergence because ________.
A) the profits from long positions and short positions must ultimately be equal
B) the profits from long positions and short positions must ultimately net to zero
C) price discrepancies would open arbitrage opportunities for investors who spot them
D) the futures price and spot price of any asset must ultimately net to zero

Question

Quizplus · Accepted Answer

Convergence is the tendency of futures prices to equal spot prices as the delivery date approaches. This is because if there are any price disparities between the futures price and the spot price, market participants can take advantage of them by arbitraging until the prices converge. Therefore, choice C is the best answer as it correctly explains convergence.

Futures Contracts Are Said to Exhibit the Property of Convergence