At contract maturity the basis should equal ________.
A) 1
B) 0
C) the risk-free interest rate
D) −1

Question

Quizplus · Accepted Answer

At contract maturity, the basis (the difference between the cash price and the futures price) should ideally be zero, indicating that there is no arbitrage opportunity between the cash and futures markets. If the basis is not zero, there would be a profitable opportunity for arbitrageurs to buy the cheaper asset and sell the more expensive one until the prices converge. A basis of 1 or -1 would indicate a large price difference between the two markets, which is unlikely to persist until maturity. The risk-free interest rate may affect the futures price, but it does not determine the basis at contract maturity.

At Contract Maturity the Basis Should Equal ________