Assume the current price of copper is $1675 per tonne, the term structure of interest rate is flat at 6% continuous compounding and proportional storage cost of copper is 1%. Suppose that the 6 month forward price for copper is $1700 per tonne, how can you make a riskless profit?

• Enter a long position in the forward contract, sell copper and invest excess funds

• Borrow to buy and store the copper and enter a short position in the forward contract

• Enter a short position in the forward contract, sell copper and invest excess funds
• Borrow to buy and store the copper and enter a long position in the forward contract

• Arbitrage is not available

Answer rating: 100% (QA)

You can make a riskless profit by entering a long position in the forward contract selling copper an... View the full answer