If You Determine That the DAX-30 Index Futures Is Underpriced

question 16

Multiple Choice

If you determine that the DAX-30 Index futures is underpriced relative to the spot DAX-30 Index, you could make an arbitrage profit by

• A)buying all the stocks in the DAX-30 and selling put options on the DAX-30 Index.
• B)selling short all the stocks in the DAX-30 and buying DAX-30 futures.
• C)selling all the stocks in the DAX-30 and buying call options on the DAX-30 Index.
• D)buying DAX-30 Index futures and selling all the stocks in the DAX-30.

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Definitions:

Equilibrium Price

The selling price where the amount of products offered is equal to the amount of products consumers want to buy.

Quantity Supplied

The amount of a good or service that producers are willing and able to sell at a particular price over a specified period.

Quantity Demanded

Denotes the overall quantity of a product or service that buyers are ready and capable of buying at a certain price point during a specified timeframe.

Shortage

A situation where the demand for a product exceeds the supply available at a specific price.