Credit Derivatives Futures Question

aroranidhi2004
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Credit Derivatives Futures Question

Postby aroranidhi2004 » Wed Jan 20, 2016 3:52 pm

Hi Edupristine Team,

Can someone please help me with the question below:

"Liz Potter is analyzing futures markets in the nation of Subservia for the first time. She has noted various historical time periods with the high volume of normal backwardation trading, and other periods of time with a high volume of normal contango trading. Currently most of the trading volume evidances normal contango pricing. Future prices in Subservia are most likely:

A. biased predictors of expected spot rates.
B. unbiased predictors of expected spot rate.
C. lower than expected spot rate.

Kindly provide the correct answer with explanation and why two other choices were wrong.

Regards
Nidhi

aroranidhi2004
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Posts: 41
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Re: Credit Derivatives Futures Question

Postby aroranidhi2004 » Sat Jan 23, 2016 2:54 pm

Can someone please help with this?

Regards
Nidhi

edupristine
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Re: Credit Derivatives Futures Question

Postby edupristine » Sat Jan 30, 2016 5:25 am

Hi Nidhi,

The answer is B) An unbiased predictors of expected spot rate.

It is not C) because, the market is currently contango and the future prices are most likely to be higher than the expected spot rate.

It is not A) because, the market has shown trends of both backwardation and contango in the past reflection a true market.

aroranidhi2004
Finance Junkie
Posts: 41
Joined: Thu Oct 16, 2014 4:51 pm

Re: Credit Derivatives Futures Question

Postby aroranidhi2004 » Sat Jan 30, 2016 10:17 pm

Thanks for replying back.. The explanation for why it can't be C is understood . But can you please tell me how historical time periods with high volumes of backwardation trading and than high volumes of contango trading depicts unbiasedness of future prices.


Thanks,
Nidhi

edupristine
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Re: Credit Derivatives Futures Question

Postby edupristine » Fri Feb 05, 2016 4:23 pm

For varied reasons, the market would exhibit circumstances, when the futures prices would be lesser / higher than the spot price. Since this status has been witnessed in history, we can conclude the unbiasedness.

PharmacieEnhop
Posts: 1
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Pharmacie en Belgique

Postby PharmacieEnhop » Wed Feb 17, 2016 6:17 am

Good topic)


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