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Answer: In a backwardation market, the discount in forward prices relative to the spot price represents a positive yield for the commodity consumer.
## Explanation In commodity markets: - **Backwardation**: Forward prices are lower than spot prices (discount in forward prices relative to spot) - **Contango**: Forward prices are higher than spot prices (premium in forward prices relative to spot) When the market is in backwardation, commodity consumers (buyers) benefit because they can lock in lower prices for future delivery compared to current spot prices. This discount represents a positive yield for consumers. Conversely, in contango markets, commodity suppliers benefit because they can sell forward at higher prices than the current spot price. Therefore, option B is correct: In a backwardation market, the discount in forward prices relative to the spot price represents a positive yield for the commodity consumer.
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In commodity markets, the complex relationships between spot and forward prices are embodied in the commodity price curve. Which of the following statements is true?
A
In a backwardation market, the discount in forward prices relative to the spot price represents a positive yield for the commodity supplier.
B
In a backwardation market, the discount in forward prices relative to the spot price represents a positive yield for the commodity consumer.
C
In a contango market, the discount in forward prices relative to the spot price represents a positive yield for the commodity supplier.
D
In a contango market, the discount in forward prices relative to the spot price represents a positive yield for the commodity consumer.
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