Suppose that you observe the following price information on gold spot and futures contracts. Assuming short-selling is possible and there are no transactions costs, describe an arbitrage strategy to profit from the quoted price. What factors should you consider before making such an arbitrage trade? The risk-free rate is 5% per annum (continuously compounded).

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Arbitrage is possible due to 6 month forward rate and 6 month rate of interest ... View the full answer