medium · FRM Part 1
A refinery needs to buy crude oil in 6 months and hedges using futures.
If the market moves from contango to backwardation during this period, how does this change the basis?
- The basis (Spot - Futures) decreases as the futures price rises above the spot price.
- The basis (Spot - Futures) moves closer to zero but stays negative.
- The basis (Spot - Futures) increases from a negative value to a positive value.
- The basis remains constant because of the no-arbitrage principle.
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