The futures contract for settlement in 4 months is trading at F0 = $6.35 and the cash market is trading at S1 = $6.42. The 4-month interest rate on a continuously compounded basis is 2 percent. What is the arbitrage trade that is available, the transactions and the arbitrage profit?

		Buy now at S1 with borrowed money and enter a short forward contract at Fo. At time T deliver the underlying, receive F0 and pay back the loan plus interest. Net profit is: $0.4200
		Buy now at S1 with borrowed money and enter a short forward contract at Fo. At time T deliver the underlying, receive F0 and pay back the loan plus interest. Net profit is: $0.0280
		Sell short S1 and invest proceeds at r and enter long a forward contract at Fo; at time T receive the underlying for F0, cover the short and also collect the principal plus from the bank. Net profit is: 0.1129

The futures contract for settlement in 4 months is trading at F0 = $6.35 and the cash market is trading at S1 = $6.42. The 4-month interest rate on a continuously compounded basis is 2 percent. What is the arbitrage trade that is available, the transactions and the arbitrage profit? Buy now at S1 with borrowed money and enter a short forward contract at Fo. At time T deliver the underlying, receive F0 and pay back the loan plus interest. Net profit is: $0.4200 Buy now at S1 with borrowed money and enter a short forward contract at Fo. At time T deliver the underlying, receive F0 and pay back the loan plus interest. Net profit is: $0.0280 Sell short S1 and invest proceeds at r and enter long a forward contract at Fo; at time T receive the underlying for F0, cover the short and also collect the principal plus from the bank. Net profit is: 0.1129