The Presence of the Delivery Option in a Futures Contract

question 24

Multiple Choice

The presence of the delivery option in a futures contract means that

• A) A futures contract may be physically settled but not a forward contract.
• B) All else remaining the same, a futures contract will trade at a lower price than a forward.
• C) All else remaining the same, a futures contract will trade at a higher price than a forward.
• D) A futures contract mat be settled in cash or by delivery of the physical asset.

---

Definitions:

Diagram (A)

A graphical representation or chart designed to illustrate or explain concepts, processes, or data.

Allocative Inefficiency

A situation in which resources are not distributed optimally among producers or consumers, leading to a loss in economic efficiency.

Profit-Maximizing Output

The point of production where a company reaches its maximum profit, occurring when marginal cost is equal to marginal revenue.

Marginal Cost

The bump in expenditure for manufacturing an additional unit of a product or service.