I thought derivatives were easy, until I came across this weird question->
Schweser, Derivatives, page 55, question 10
The question states the following about a specific nation’s market
“…various historical time periods with a high volume of normal backwardation trading, and other periods of time with a high volume of normal contago trading”.
Currently, most of the trading volume evidences normal contago prices
Question - Future prices in this country are most likely:
a. biased predictors of expected spot rates
b. unbiased predictors of exp spot rates
c. lower than expected spot rates
My question: What does contago/backwardation have to do with biased/unabiased?
Answer at the back doesn’t really give any detail about why this is so.
Would appreciate your help in making me feel overconfident again!