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23
In the corn futures contract a number of different types of corn can be delivered (with price adjustments specified by the exchange) and there are a number of different delivery locations. Which of the following is true
A. This flexibility tends increase the futures price.
B.This flexibility tends decrease the futures price.
C.This flexibility may increase and may decrease the futures price.
D.This flexibility has no effect on the futures price
A. This flexibility tends increase the futures price.
B.This flexibility tends decrease the futures price.
C.This flexibility may increase and may decrease the futures price.
D.This flexibility has no effect on the futures price
Answer: B
The party with the short position chooses between the alternatives. The alternatives therefore make the futures contract more attractive to the party with the short position. The lower the futures price the less attractive it is to the party with the short position. The benefit of the alternatives available to the party with the short position is therefore compensated for by the futures price being lower than it would otherwise be.
The party with the short position chooses between the alternatives. The alternatives therefore make the futures contract more attractive to the party with the short position. The lower the futures price the less attractive it is to the party with the short position. The benefit of the alternatives available to the party with the short position is therefore compensated for by the futures price being lower than it would otherwise be.
Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015