Question
The current spot price of gold is $1280 per ounce. The forward price for 1 year delivery is $1400. Suppose an investor can borrow at
The current spot price of gold is $1280 per ounce. The forward price for 1 year delivery is $1400. Suppose an investor can borrow at 3% per year (simple interest). How can the investor make a riskless profit (assuming there is no cost or benefit to storing gold).
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Step: 1
To make a riskless profit in this scenario the investor can use a strategy called arbitrage Arbitrag...Get Instant Access to Expert-Tailored Solutions
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Fundamentals of Futures and Options Markets
Authors: John C. Hull
8th edition
978-1292155036, 1292155035, 132993341, 978-0132993340
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