As the Convenience Yield Increases,which of the Following Is True

question 17

Multiple Choice

As the convenience yield increases,which of the following is true?

• A) The one-year futures price as a percentage of the spot price increases
• B) The one-year futures price as a percentage of the spot price decreases
• C) The one-year futures price as a percentage of the spot price stays the same
• D) Any of the above can happen

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Definitions:

Horizontal

Refers to something that is parallel to the horizon, often used in contrast with vertical; in economics, it may pertain to mergers between companies at the same stage of production.

Economic Profits

Refers to the financial gains that exceed the total costs, including both explicit and implicit costs, of a business.

Enter Industry

The act of starting or initiating business operations in a particular market sector.

Long Run

The long run is a time period sufficiently long that all factors of production and costs can be fully adjusted, including plant sizes, machinery, and entry or exit from an industry.