The Basis Converges to Zero Over the Life of the Futures

question 3

Multiple Choice

The basis converges to zero over the life of the futures contract because:

• A) futures contracts are more actively traded towards the end of their life
• B) futures contracts are less actively traded towards the end of their life
• C) the spot and futures prices converge at expiry
• D) none of these choices

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Definitions:

Pre-trip Inspection

A systematic safety check performed before operating a vehicle, especially commercial and heavy-duty vehicles, to ensure it is safe and compliant with regulations.

Contribution Margin

The selling price per unit minus the variable cost per unit, representing the portion of sales that helps cover fixed costs.

Operating Cash Flow

The amount of cash generated by a company's normal business operations, indicating its ability to cover bills and expenses.

Variable Costs

Variable costs are expenses that change in proportion to the activity of a business.