[sonicvibe]

there is a part in the textbook I don't understand. If a futures price rises far enough above a cash price to more than cover storage costs and interest expense , commodity traders will undertake cash-futures arbitrage by buying in the cash market and selling in the futures market. "this drives down the futures price and drives up the cash price until the basis is restored to an economically justifiable level". The part in quote I'm confused on. Can someone dumb it down for me why does it drive down the fp and drive up the cash price? Does the future price become the new cash/spot price? That's why cash price drives up? If so what about future price. Why is it driven down. Makes no sense to me. There is a formula carrying-charge market: basis=cash price - futures price < 0 and inverted market: basis = cash price -futures price > 0. please dumb it down for me the quoted part. Thanks