Question: Two traders are arguing about the difference between an inverted futures market, Backwardation and Contango: Trader 1: Contango and Normal Contango are different. Contango refers

Two traders are arguing about the difference between an inverted futures market, Backwardation and Contango: Trader 1: Contango and Normal Contango are different. Contango refers to a situation where futures prices rise with maturity due to a positive cost of carry whereas Normal contango refers to falling futures prices as a contract gets closer to maturity. Trader 2: An inverted futures market and Backwardation are the same. In both a backwardated and an inverted market, futures prices are lower than the current spot price. Which of the following best describes the two traders statements? A) Trader 1 is correct B) Trader 2 is correct C) Both trader 1 and trader 2 are correct D) Neither Trader 1 nor Trader 2 are correct E) Both A and D are correct

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