Question

The forward price

a. may be the same as the spot price.
b. all of the options
c. may be higher than the spot price.
d. may be less than the spot price.

Answer 1

A forward price may be higher or lower than the spot price. If the forward price is higher than the spot price, it is known as contango. If the forward price is lower than the spot price, it is known as backwardation.

Step-by-step explanation:

A forward price may be higher or lower than the spot price. The forward price is the agreed-upon price for a future transaction, while the spot price is the current market price. If the forward price is lower than the spot price, it is known as backwardation. If the forward price is higher than the spot price, it is known as contango.

For example, let's say the spot price of a commodity is $50 and the forward price is $55. This means that the forward price is higher than the spot price. On the other hand, if the forward price is $45, it would be lower than the spot price.