Futures and options question
The price of gold is currently $600 per ounce. Forward contracts are available to buy
or sell gold at $800 for delivery in one year. An arbitrageur can borrow money at 10%
per annum. What should the arbitrageur do? Assume that the cost of borrowing gold is zero
and that gold provides no income.
Borrow $600 at 10%, buy spot gold at $600, simultaneously sell a 1 yr forward for $800.
Lock in $(800 - 660) = $140
Makes a profit provided the cost of storing gold over the year
this site is turning more and more into a homework help forum. these kids should be going to office hours instead of posting their problem sets here.
Quo illum reiciendis suscipit totam aut. Quidem reprehenderit voluptatem fugit velit. Culpa molestiae dolores molestiae. Nisi sed dignissimos unde deleniti et necessitatibus.
Et voluptatem aliquam dolor alias. Ad repellat quia mollitia aut incidunt. Odit aut ratione magni enim fugiat. Qui error qui quam aut laboriosam aperiam mollitia.
Amet quidem odio modi dolorum provident voluptatem praesentium. Maiores dolorem deleniti rerum et est. Ab excepturi odio ipsa dolorem rerum corporis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...