Financial Risk Manager Part 1
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A junior trader at an investment firm is analyzing the structure of futures markets along with the corresponding spot markets for the underlying assets. The goal is to identify any correlations in the price movements between these markets and to propose specific trading strategies that leverage these correlations. What is the correct statement about the relationship between futures prices and spot prices?
A
Futures prices may vary widely from the spot price of the underlying asset, but the two prices will typically converge as a futures contract approaches maturity
B
Arbitrageurs keep the futures price and the underlying spot price close to each other throughout the life of the contract.
C
If the futures price is above the underlying spot price during the delivery period, a trader can profit by buying futures contracts and selling the underlying asset in the spot market.
D
The S&P 500 futures contract has the most trading activity of any futures contract due to its requirement to take physical delivery on the delivery date.