The spot price of gold is $1720 per ounce. The fair (no arbitrage) forward price for the delivery of gold in two years time is $1850 per ounce. However, you discover that the 2-year quote for gold forward contracts is $1900.

What trades would an arbitrageur enter today to capture this arbitrage opportunity?

Select one:

Enter a long forward contract to buy gold two years from now at $1900, then simultaneously short sell gold today at $1720 and invest the proceeds in the bank.

Borrow $1720 today from the bank and use it to buy gold on the spot market, then immediately enter a short forward contract on gold at the incorrect price of $1900.

Enter a short forward contract to sell gold two years from now at $1900, then simultaneously enter a long forward contract at $1850

Borrow $1720 today from the bank and use it to buy gold on the spot market, then immediately enter a long forward contract on gold at the incorrect price of $1900.