Assume that the gold spot price is equal to $1800 per ounce. Also assume that the...

 

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Assume that the gold spot price is equal to $1800 per ounce. Also assume that the 6-month gold futures price is equal to $1810 ounce and that the 6-month USD LIBOR rate is equal to 1.5%. Using the information provided answer the questions 1 through 7 by providing the answers in the shaded areas. 1. Is there an arbitrage opportunity available based the information in the question cited above? 2. Is the gold futures price above or below the non-arbitrage futures price? 3. In order to create an arbitrage portfolio do you buy or short gold in the physical gold market? 4. In order to create an arbitrage portfolio do you buy or sell the 6-month gold futures contract? 5. Do you need to borrow money, lend money or neither borrow or lend money to successfully engage in this arbitrage trade: 6. When you unwind the futures contract used for the arbitrage trade will you be making or taking delivery of physical gold? How much do you expect to earn per ounce after concluding a successful arbitrage transaction? B 01-11 013-15 GIE 14 019-22 IKKE QERE G Assume that the gold spot price is equal to $1800 per ounce. Also assume that the 6-month gold futures price is equal to $1810 ounce and that the 6-month USD LIBOR rate is equal to 1.5%. Using the information provided answer the questions 1 through 7 by providing the answers in the shaded areas. 1. Is there an arbitrage opportunity available based the information in the question cited above? 2. Is the gold futures price above or below the non-arbitrage futures price? 3. In order to create an arbitrage portfolio do you buy or short gold in the physical gold market? 4. In order to create an arbitrage portfolio do you buy or sell the 6-month gold futures contract? 5. Do you need to borrow money, lend money or neither borrow or lend money to successfully engage in this arbitrage trade: 6. When you unwind the futures contract used for the arbitrage trade will you be making or taking delivery of physical gold? How much do you expect to earn per ounce after concluding a successful arbitrage transaction? B 01-11 013-15 GIE 14 019-22 IKKE QERE G

Answer rating: 100% (QA)

Arbitrage Opportunity An arbitrage opportunity exists when the futures price does not equal the spot ... View the full answer