If the Implied Repo Rate Is Lower Than the Borrowing $R_b$

question 9

Multiple Choice

If the implied repo rate is lower than the borrowing rate $R_b$ and the lending rate $R_{\ell}$ for the same maturity,what strategy would you adopt to undertake an arbitrage?

• A)Buy the asset spot,sell it forward,lend at rate \(R_{\ell}\)
• B)Buy the asset spot,sell it forward,borrow at rate \(R_b \)
• C)Sell the asset spot,buy it forward,lend at rate \(R_{\ell}\)
• D)Sell the asset spot,buy it forward,borrow at rate \(R_b \)

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