Question

Many commodities have futures markets associated with them. A futures market is a prediction market that aggregates information based on uncertain events that may impact the market, and buyers commit to a financial contract in which they obligate themselves to purchasing a fixed quantity of the asset at a specified price on a certain date. In April, 2019, the national average price of unleaded gasoline was $2.87 per gallon. At the same time, the futures price for a June contract on unleaded gasoline was $2.07 per gallon.

A. The forecasted price in the futures market suggests that unleaded gasoline prices will_____by June of 2019.
B. If the information transmitted in this market is accurate and unbiased, then the predict____the actual price we will see in June.

Answer 1

A. Decline

B. Close to

Step-by-step explanation:

A. The prediction market for gasoline is much lower so prices would need to decline

B. Due to the information being accurate, it is safe to assume that the predicted price will we close to the actual price

Answer 2

Answer is explained in the explanation section below.

Step-by-step explanation:

Solution:

a.

Unleaded fuel prices are expected to fall by June 2019 according to future demand forecasts.

Since the future price is less than the spot price, it would be better for long-term buyers who can wait for the price to increase because the market is currently in BACKWARDATION. This happens due to a short-term disparity in demand and supply.

b.

If the information in this sector is reliable and impartial, the expected June price will most likely be similar to the real price we will see in June.

It is reliable if the market is accurate and impartial, i.e. the market research on which knowledge flows.

The prices of goods are either integrated or expressed in such a flow of knowledge.

So, if it's unbiased and reliable, the forecast prices would be reasonably similar to the real future price.