In the futures markets,price differences between the futures and the underlying assets are reduced by the actions of:
A) speculators.
B) arbitrageurs.
C) hedgers.
D) traders.

Question

Quizplus · Accepted Answer

Price differences between futures and the underlying assets are reduced by the actions of arbitrageurs. Arbitrageurs take advantage of price differences by simultaneously buying and selling the same asset in the spot and futures markets, thereby forcing the prices to converge. This helps to ensure that the futures market reflects the true value of the underlying asset. Speculators, hedgers, and traders may influence prices in the futures market, but they do not necessarily reduce the price differences between the futures and the underlying assets.

In the Futures Markets,price Differences Between the Futures and the Underlying