Multiple Choice
The spot price trades at a bid/ask quote of 100-101 (you can buy at 101 and sell at 100) . The one-year forward trades at 99-101.90 (you can buy forward at 101.90 and sell forward at 99) . If the simple interest rate for one year is 2%, which of the following statements is most accurate?
A) You can execute an arbitrage by buying spot and selling forward.
B) You can execute an arbitrage by selling spot and buying forward.
C) You can execute an arbitrage by selling spot, buying forward, and investing the proceeds of the spot sale at 2%.
D) You cannot execute an arbitrage at these prices.
Correct Answer:
Verified
Correct Answer:
Verified
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