A futures contract covering 25,000 gallons of Jet Fuel will expire approximately 30 minutes from now. You
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Question:
A futures contract covering 25,000 gallons of Jet Fuel will expire approximately 30 minutes from now. You note that the quoted futures price is $1.20 per gallon and the spot price of jet fuel is $1 per gallon. You realise that this is an arbitrage opportunity.
Which of the following will you do?
Select one:
Simultaneously short the futures contract and buy 25,000 gallons of jet fuel at the spot price.
Simultaneously long the futures contract and short sell 25,000 gallons of jet fuel at the spot price.
Simultaneously long both the futures contract and 25,000 gallons of jet fuel.
While this is an arbitrage opportunity, you cannot profit from it unless you already have an existing position in the jet fuel futures contract.
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