Forward Pricing by Replication Depends on the Following Assumption

question 7

Multiple Choice

Forward pricing by replication depends on the following assumption:

• A)That the nominal interest rate for the cost of carry is positive.
• B)That long positions are easier to take in the forward contract than in the spot asset.
• C)That the underlying is a traded asset which is storable.
• D)That the spot asset is not a financial security.

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Definitions:

Price Mechanism

The manner in which the prices of goods or services affect the supply and demand of those goods or services, and how this interaction determines the allocation of resources.

Equity

The ownership interest held by shareholders in a corporation, represented by their shares of the company.

George Strait

George Strait is an American country music singer, songwriter, actor, and music producer, known for his contribution to the country music industry.

Public Good

A public good is defined by two main characteristics: non-excludability and non-rivalry, meaning no one can be excluded from its use and one person's use does not reduce its availability to others.