The spot price of gold is USD 1,250 per troy ounce. The forward price for delivery in 6 months is USD 1,280 per troy ounce. The arbitrageur can borrow or lend money at 4% per annum on a semi-annual compounding basis. Which of the following is the correct arbitrage transaction?

a)Buy spot gold; borrow $1,250; buy the gold forward contract.

b)Buy spot gold; lend $1,250; sell the gold forward contract.

c)Buy spot gold; borrow $1,250; sell the gold forward contract.

Suppose that the spot price of the British pound is USD 1.6590, the forward price of a 180 day forward contract on the British pound is USD 1.6566 and a 180 day European put option on British pounds with an exercise price of USD 1.6966 is USD0.03 An arbitrage would involve:

a)Short-selling the British pounds in the spot market and selling the 180-day forward.

b)Buying the 180-day forward and buying the 180-day European put.

c)Buying the 180-day forward and writing the 180 day European put.

A company enters into 2 long futures contract to buy 100,000 units of a commodity for 140 cents per unit. The initial margin is $5,000 and the maintenance margin is $4,000. What is the futures price per unit above which $6000 can be withdrawn from the margin account?

a)144 cents

b)143 cents

c)145 cents

On March 1 a commoditys spot price is $55 and its June futures price is $56. On May 1 the spot price is $50 and the June futures price is $52. A company entered into futures contracts on March 1 to hedge its sale of the commodity on May 1. The effective price that the company receives for the commodity after taking the hedge into account is:

$55.

$56.

$54.

A company has a $100 million portfolio with a beta of 1.5. The futures price for a contract on an index is 1200. Futures contracts on $250 times the index can be traded. The trade that is necessary to hedge the stock portfolio is:

a)Buy 500 futures contracts on the index.

b)Sell 500 futures contracts on the index.

c)Sell 333 futures contracts on the index.