Suppose there is an active lease market for gold in which arbitrageurs can short or lend

out gold at a lease rate of $l=1\%.$ Assume gold has no other costs$/$benefits of carry.

Consider a three$-$month forward contract on gold.

$($a$)$ If the spot price of gold is $$\frac{360}{o}z$ and the three$-$month interest rate is $4\%,$ what is

the arbitrage$-$free forward price of gold?

$($b$)$ Suppose the actual forward price is given to be $$\frac{366}{o}z.$ Is there an arbitrage oppor$-$

tunity? If so$,$ how can it be exploited?