Normal backwardation maintains that, for most commodities, there are natural hedgers who desire to shed risk, and that speculators will enter the long side of the contract only if the futures price is below the expected spot price. True False

Normal backwardation maintains that, for most commodities, there are natural hedgers who desire to shed risk, and that speculators will enter the long side of the contract only if the futures price is below the expected spot price. True False

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterP1: Part 1: Integrative Problem: The International Financial Environment

Section: Chapter Questions

Problem 5Q

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Concept explainers

Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.

Question

D6)

Normal backwardation maintains that, for most commodities, there are natural hedgers who desire
to shed risk, and that speculators will enter the long side of the contract only if the futures price is
below the expected spot price.
True
False

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The ability to buy on margin is one advantage of futures. Another is the ease with which one can alter one’s holdings of the asset. This is especially important if one is dealing in commodities, for which the futures market is far more liquid than the spot market.
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