Financial Risk Manager Part 1

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Explanation:

The true statement is (c).

A few reminders:

Basis is commonly defined as spot price minus futures price.
In contango (normal market), futures prices are above spot prices, so the basis is typically negative.
In backwardation (inverted market), futures prices are below spot prices, so the basis is typically positive.

Therefore:

(a) is false.
(b) is false.
(d) is false because in contango, as maturity approaches, futures prices typically decline toward spot under convergence, not increase.

Statement (c) is true because an inverted curve can be consistent with negative interest rates, but an inverted market does not require negative rates; it can also result from other factors such as convenience yield or storage constraints.

Explanation:

The true statement is (c).

A few reminders:

Basis is commonly defined as spot price minus futures price.
In contango (normal market), futures prices are above spot prices, so the basis is typically negative.
In backwardation (inverted market), futures prices are below spot prices, so the basis is typically positive.

Therefore:

(a) is false.
(b) is false.
(d) is false because in contango, as maturity approaches, futures prices typically decline toward spot under convergence, not increase.

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Q-709.3. Which statement is TRUE about the shape of the commodities forward curve?

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MManit

Last updated: April 18, 2026 at 11:32

a) In a normal market (aka, contango), the basis is positive

33.3%

b) In an inverted market (aka, backwardation), the basis is negative

33.3%

c) An inverted market (aka, backwardation) might be explained by negative interest rates but does not necessarily imply negative rates

22.2%

d) In a contango (aka, normal) market with a static forward curve, the price of a futures contract will INCREASE as time to maturity approaches zero

11.1%