If the Market Is in Backwardation

question 12

Multiple Choice

If the market is in backwardation

• A) Spot prices are less than forward prices.
• B) Futures prices are less than forward prices.
• C) Spot prices are less than futures prices.
• D) None of the above.

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Definitions:

Demand Deposits

Bank accounts that allow the holder to withdraw funds without advance notice, such as checking accounts.

Required Reserves

The minimum amount of funds that a bank must hold in reserve against specified deposit liabilities, as dictated by the central bank's regulations.

Primary Reserves

Liquid assets held by financial institutions to meet regulatory requirements and immediate liquidity needs.

Secondary Reserves

Assets that are easily convertible into cash but are not held in the form of cash itself, serving as a backup for primary reserves in financial institutions.