Question

Convergence property implies that on the delivery day,
A. cost-of-carry is paid
B. gain on the long position equals loss on the short position
C. observed futures price equals observed spot price
D. hedgers make money

Answer 1

Answer:

C.

Explanation:

Convergence property strictly implies that on the delivery day the observed futures price equals the observed spot price. In the markets these two prices must converge, If this does not happen, then this creates an arbitrage opportunity which ultimately brings with it the possibility for a risk-free profit, which is the act of buying an asset and immediately selling the same asset for a higher price.