Assume the current price of copper is $1675 per tonne, the term structure of interest rate is
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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
Related Book For
Advanced Financial Accounting
ISBN: 978-0137030385
6th edition
Authors: Thomas Beechy, Umashanker Trivedi, Kenneth MacAulay
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