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NISM Certifications · NISM-Series-XV: Research Analyst · Fundamental Analysis of Commodities

A market where the futures price for distant delivery months is lower than the near-month price is described as:

This is called backwardation. It occurs when futures prices for later delivery months are below near-month or spot prices, usually because of tight current supply or a high convenience yield. Contango is the opposite, where deferred prices are higher.

  1. ABackwardationCorrect
  2. BContango
  3. CFull carry
  4. DBasis convergence

Explanation

When distant futures trade below near futures (or spot), the curve slopes downward, called backwardation. It often reflects tight current supply or high convenience yield. Contango is the opposite, with higher deferred prices.

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