Tom is planning to use a forward contract to purchase 100 ounces of gold in two months time The current spot price of gold is $1,970 per unit Assume that Tom can borrow and lend at 3 p a compounded quarterly 2 marks Use the arbitrage free pricing principle to calculate the fair forward price for gold per ounce Round your result to two decimal places 4 marks Suppose that the forward price for purchase or sale of gold in two months time is $1,920 per unit List and explain all the steps that Tom needs to undertake in order to make an arbitrage profit from a forward contract on 100 ounces of gold in two months time Make sure you outline all that needs to happen on all relevant dates, as well as today 4 marks Suppose that the forward price for purchase or sale of gold in two months time is $2,030 per unit List and explain all the steps that Bob needs to undertake in order to make an arbitrage profit from a forward contract on 100 units of gold in three months time Make sure you outline all that needs to happen on all relevant dates, as well as today

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Tom is planning to use a forward contract to purchase 100 ounces of gold in two months time. The current spot price of gold is

Tom is planning to use a forward contract to purchase 100 ounces of gold in two months time. The current spot price of gold is $1,970 per unit. Assume that Tom can borrow and lend at 3% p.a. compounded quarterly.

[2 marks] Use the arbitrage-free pricing principle to calculate the fair forward price for gold per ounce. Round your result to two decimal places.
[4 marks] Suppose that the forward price for purchase or sale of gold in two months time is $1,920 per unit. List and explain all the steps that Tom needs to undertake in order to make an arbitrage profit from a forward contract on 100 ounces of gold in two months time. Make sure you outline all that needs to happen on all relevant dates, as well as today.
[4 marks] Suppose that the forward price for purchase or sale of gold in two months time is $2,030 per unit. List and explain all the steps that Bob needs to undertake in order to make an arbitrage profit from a forward contract on 100 units of gold in three months time. Make sure you outline all that needs to happen on all relevant dates, as well as today.