I think the answer should have been Option A. The explanation also matches with the same.
But the answer given is Option B.
Please explain the same.
Thank you
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Option B is correct because if no or little convenience yield then forward rate is more than spot rate (F>S) which is a case of contango.
Backwardation is a case where F<S that is happen when high convenience yield.
I think this will help.
But the forward curve is downward sloping in the case of backwardation, and upward sloping in the case of contango.
The question is states “forward curve is downward sloping”
This is a error in many question so you have to focus on convenience yield.
ignore, error in question