As a Contract Approaches Maturity, the Spot Price and Forward

question 8

Multiple Choice

As a contract approaches maturity, the spot price and forward price

• A) increase.
• B) diverge.
• C) maintain a fixed price differential.
• D) have a random relationship.
• E) converge.

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Definitions:

FOB Shipping Point

A shipping term indicating that the buyer assumes all risk and pays for shipping costs from the point of departure; ownership of goods transfers to the buyer when the carrier picks up the items.

FOB Destination

is a shipping term indicating the seller bears delivery risk and costs until the goods reach the buyer's location, at which point the buyer takes over.

Title

A legal term referring to the formal right of ownership of property, assets, or a company.

FOB Shipping Point

A term used in shipping agreements indicating that the buyer is responsible for the goods and the shipping cost as soon as the goods leave the seller's premises.