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Answer: In an inverted market, the price of a longer-term futures contract is lower than the price of a shorter-term futures contract.
**Explanation:** A is correct. In an inverted futures market (also known as backwardation), the price of longer-term futures contracts is lower than the price of shorter-term futures contracts. This occurs when the market expects future prices to be lower than current prices. B is incorrect because it describes a normal market (contango), where longer-term futures contracts have higher prices than shorter-term contracts. C and D are incorrect because they refer to the relationship between futures prices and spot prices, which defines backwardation (futures price < spot price) and contango (futures price > spot price), rather than the term structure of futures prices that defines normal vs. inverted markets.
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Which of the following would an intern correctly describe as a characteristic of an inverted futures market for a commodity?
A
In an inverted market, the price of a longer-term futures contract is lower than the price of a shorter-term futures contract.
B
In an inverted market, the price of a longer-term futures contract is higher than the price of a shorter-term futures contract.
C
In an inverted market, the price of the futures contract is lower than the spot price of the underlying asset.
D
In an inverted market, the price of the futures contract is higher than the spot price of the underlying asset.
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