Futures Contracts Are Said to Exhibit the Property of Convergence

question 54

Multiple Choice

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

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Definitions:

May Coffee Futures

Contracts for the future delivery of coffee that are due in May, used for hedging and speculative purposes in the commodities market.

Settlement Value

The final value at which a futures contract is settled upon expiration or closing.

Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy an asset at a predetermined price within a specific time period.