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:

Mutual Coercion

A concept often applied in social sciences referring to the use of regulations or laws to limit behaviors that are harmful to the community.

Tragedy Of The Commons

A situation in which individual users deplete or spoil a shared resource due to collective overuse.

Cap-And-Trade System

An environmental policy tool that sets a limit on emissions and allows entities to buy and sell permits for emitting greenhouse gases.

Carbon

An element that is the fundamental building block of life and a major component of many substances, including carbon dioxide and organic materials.