In the futures market, the difference between the price of the futures and the underlying asset is eliminated by
A) speculators.
B) hedgers.
C) arbitrageurs.
D) longs.

Question

Quizplus · Accepted Answer

The elimination of the difference between the price of the futures and the underlying asset is done by arbitrageurs. Arbitrageurs take advantage of any price misalignments between the futures market and the underlying asset by simultaneously buying and selling the two assets to make a riskless profit and ensure that the prices remain in line with each other. Hedgers use futures contracts to protect themselves from price fluctuations, speculators bet on the direction of market movements, and longs merely refer to individuals who have bought a futures contract.

In the Futures Market, the Difference Between the Price of the Futures