Multiple Choice
The risk-free interest rate drops but the futures on a stock market index rises. Which of the following statements is the most accurate?
A) There are arbitrage profits to be made by going long futures, short spot, and investing.
B) There are arbitrage profits to be made by going short futures, long spot, and borrowing.
C) The futures is overvalued but this may or may not mean an arbitrage opportunity is available.
D) There is not enough information in the question to identify if there is an arbitrage or not.
Correct Answer:
Verified
Correct Answer:
Verified
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