CFA Practice Question
The insurance theory assumes that the futures curve ______
B. is in contango normally.
C. can fluctuate between contango and backwardation in the long term.
A. is in backwardation normally.
B. is in contango normally.
C. can fluctuate between contango and backwardation in the long term.
Correct Answer: A
The theory is known as "normal backwardation." Investors must be offered a risk premium to accept price risk.
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