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why does the formula for forward or futures does not hold for some type of commodities

why does the formula for forward or futures does not hold for some type of commodities

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Answer #1

The formulae for forward ccontract in case of forward is given as below:

Forward(f) = Spot(s) * Cost of storage * Interest cost,

But it may not hold for some of the commodities due to the below factors:

Different Market expectations of commodity due to demand and supply- Expectations are mainly dependent on demand and supply factor inferred by trader.

Arbitrage Opportunity-  When supply in one market is higher than another market. Then one can make aribtrage profit by buying in one market and sell in another market.

Regulatory factors- If government has some anti dumping duty or any kind of restriction on some specific commodity. Then prices of those commodity increases steep.in spot and forward.

International markets- International market also has some determination of commodity prices.

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