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75
As the convenience yield increases, which of the following is true?
A.The one-year futures price as a percentage of the spot price increases
B.The one-year futures price as a percentage of the spot price decreases
C.The one-year futures price as a percentage of the spot price stays the same
D.Any of the above can happen
A.The one-year futures price as a percentage of the spot price increases
B.The one-year futures price as a percentage of the spot price decreases
C.The one-year futures price as a percentage of the spot price stays the same
D.Any of the above can happen
Answer: B
As the convenience yield increases, the futures price declines relative to the spot price. This is because the convenience of owning the asset (as opposed to having a futures contract) becomes more important.
As the convenience yield increases, the futures price declines relative to the spot price. This is because the convenience of owning the asset (as opposed to having a futures contract) becomes more important.
Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015