Normal Backwardation

question 67

Multiple Choice

Normal backwardation

• A) maintains that, for most commodities, there are natural hedgers who desire to shed risk.
• B) maintains that speculators will enter the long side of the contract only if the futures price is below the expected spot price.
• C) assumes that risk premiums in the futures markets are based on systematic risk.
• D) maintains that, for most commodities, there are natural hedgers who desire to shed risk, and that speculators will enter the long side of the contract only if the futures price is below the expected spot price.
• E) maintains that speculators will enter the long side of the contract only if the futures price is below the expected spot price and assumes that risk premiums in the futures markets are based on systematic risk.

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Definitions:

Instrument

A formal written legal document, such as a contract, will, or deed, that formally records the details of a transaction or agreement.

Forgery

The fraudulent making or altering of a written document with the intention to deceive or defraud.

Loss

Loss refers to the reduction in value of an asset, or a decrease in financial wealth due to expenses exceeding revenues.

Transferred

The act of moving or conveying something from one place, person, or entity to another.