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Answer: As an inverted futures market since more distant delivery contracts are trading at lower prices than nearer-term ones.
## Explanation **Market Structure Analysis:** - **Spot Price**: 321 - **July 2014**: 312 (decreasing from spot) - **October 2014**: 310 (further decreasing) - **December 2014**: 309 (lowest price) **Key Observations:** 1. All futures prices are below the spot price (321 > 312 > 310 > 309) 2. More distant delivery contracts trade at progressively lower prices **Market Classification:** - **Inverted Market (Backwardation)**: When futures prices are below spot price and/or more distant contracts trade at lower prices than nearer-term contracts - **Normal Market (Contango)**: When futures prices are above spot price and more distant contracts trade at higher prices than nearer-term contracts **Why Option B is correct:** - The market shows clear backwardation characteristics: - Futures prices < Spot price - More distant contracts < Nearer-term contracts - This is the definition of an inverted futures market **Why other options are incorrect:** - **Option A**: The pattern is not "normal" - it's inverted/backwardation - **Option C**: It's not typical for more distant contracts to trade lower; this is characteristic of backwardation, not normal markets
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A commodities trader observes quotes for futures contracts as follow:
| Spot Price | 321 |
|---|---|
| July, 2014 | 312 |
| October, 2014 | 310 |
| December, 2014 | 309 |
This commodity is trading:
A
As a normal futures market since the futures prices are consistent with the commodity's seasonality.
B
As an inverted futures market since more distant delivery contracts are trading at lower prices than nearer-term ones.
C
As a normal futures market because it is typical for more distant delivery contracts to trade lower than nearer-term delivery contracts.
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