Assume that markets are perfect in the sense of being free from transactions costs and short selling impediments, that the only carrying cost is the cost of financing, that borrowing and lending can both occur at the LIBOR rate of 2.00% per annum and that there is no convenience yield associated with holding gold. The spot price of gold is $1,930 per ounce on April 4, 2022. A forward contract calls for delivery of 100 ounces of gold on October 4, 2022. Assume there are exactly 6 months between the two dates.

a. If the forward contract price is $1,940/oz, is risk-free arbitrage possible? If yes, state the type (e.g. cash-and-carry or reverse cash-and-carry), show the steps a trader must take, and find the amount of profit on 1 contract. Be sure to distinguish between those actions which must be taken on April 4, 2022 and those which must be executed upon the maturity of the forward contract in October 2022.

b. If the October 2022 forward contract price is $1,960/oz, is risk-free arbitrage possible? If yes, state the type (e.g. cash-and-carry or reverse cash-and-carry), show the steps a trader must take, and find the amount of profit on 1 contract. Again, be sure to distinguish between those actions which must be taken on April 4, 2022 and those which must be executed upon the maturity of the forward contract in October 2022.