The Spot Price Trades at a Bid/ask Quote of 100-101

question 19

Multiple Choice

The spot price trades at a bid/ask quote of 100-101 (you can buy at 101 and sell at 100) .The one-year forward trades at 99-101.90 (you can buy forward at 101.90 and sell forward at 99) .If the simple interest rate for one year is 2%,which of the following statements is most accurate?

• A)You can execute an arbitrage by buying spot and selling forward.
• B)You can execute an arbitrage by selling spot and buying forward.
• C)You can execute an arbitrage by selling spot,buying forward,and investing the proceeds of the spot sale at 2%.
• D)You cannot execute an arbitrage at these prices.

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