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Answer: The pattern of futures prices for a given commodity can be partly normal (aka, contango) and partly inverted (aka, backwardation)
**Correct answer: B** - **B is true.** The futures term structure for a commodity does not have to be entirely normal or entirely inverted. It can be **normal (contango)** at some maturities and **inverted (backwardation)** at others. Why the others are false: - **A**: The delivery period is not simply the last trading day of the month for 24 hours. Delivery terms are contract-specific. - **C**: When delivery terms allow choices, the **short position** typically has certain delivery options, not the long position. - **D**: Price limits and position limits are mainly meant to reduce excessive volatility and market manipulation, not to stop arbitrageurs from narrowing spot-futures mispricing as expiration approaches.
Author: Manit Arora
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Question 21.12.1. In regard to the specifications of futures contracts and the patterns of futures prices, which of the following statements is TRUE?
A
The delivery period is the last trading day (24 hours) of the month
B
The pattern of futures prices for a given commodity can be partly normal (aka, contango) and partly inverted (aka, backwardation)
C
Whenever there is a choice about what is delivered, the party with the long position always has the right to insist on the grade, location, and delivery time
D
Price limits and position limits are imposed for the purpose of preventing arbitrageurs from exploiting any price difference between the spot and futures price as the delivery period approaches
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