Answer: Normal backwardation

**Correct answer: B. Normal backwardation** An **inverted futures market** is the same as **backwardation**: - $F(0) < S(0)$, or - a longer-maturity futures price is less than a shorter-maturity futures price. So options **A**, **C**, and **D** all describe an inverted market. **Normal backwardation** is different: it refers to the futures price being below the **expected future spot price**, i.e.: $$F(0) < E[S(t)]$$ That does **not** define an inverted market. It describes the relationship to the expected spot price, not the shape of the futures curve.

Author: Manit Arora