Question: (a) (4 pts) The first issue that she comes across is to choose an appropriate risk-free rate (or precisely a discount yield curve) in order

(a) (4 pts) The first issue that she comes across is to choose an appropriate risk-free rate (or precisely a discount yield curve) in order to make a comparison with the implied interest rate calculated from gold futures contracts. Candidates are the US treasury yield curve, the USD LIBOR zero curve, and the USD Overnight Indexed Swap (OIS) curve. The instructor suggests her to use the USD OIS curve. What are the problems associated with the US Treasury rate and USD LIBOR as proxies for risk-free rates? Why is the OIS rate a better proxy?

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