Answer-first summary for fast verification
Answer: The roll return (roll yield) is profitable to a *long* futures position during an inverted (backwardation) futures market
**Correct answer: B. The roll return (roll yield) is profitable during an inverted (backwardation) futures market; i.e., the futures are rolled into higher prices as the futures price increases while maturity shortens.** Why **B** is true: - In backwardation, futures prices rise as maturity shortens. - A long futures position benefits when the contract is rolled from a lower-priced longer maturity into a higher-priced shorter maturity contract. - This creates a positive roll yield for the long position. Why the others are false: - **A** is false: futures curves can alternate between contango and backwardation across maturities or over time. - **C** is false: a falling futures price does not necessarily mean backwardation; the market can still be in contango if the curve shape remains upward sloping. - **D** is false: gold is not guaranteed to always be in contango; convenience yield, lease rates, and supply/demand factors can produce backwardation.
Author: Manit Arora
Ultimate access to all questions.
Q-147.3 Which of the following is TRUE about a normal/inverted futures market?
A
A futures market is either normal or inverted but cannot be a mixture
B
The roll return (roll yield) is profitable to a long futures position during an inverted (backwardation) futures market
C
A falling futures price necessarily implies backwardation
D
Gold must always be a normal market (assuming positive interest rates) because it has storage cost but does not pay a dividend
No comments yet.