Applies to derivative products. Futures contracts trade in a "cost-of-carry market" where the underlying commodity can be stored, insured, and converted into the future easily and inexpensively. Arbitrageurs, because of the ease of switching from the spot commodity to futures, will keep these markets in line with prevailing interest rates.
Nearby TermsCost Recovery Period Cost-benefit ratio Cost-of-carry market Cost-plus contract Cost-push inflation
Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University