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

question 35

Multiple Choice

If you determine that the DAX-30 Index futures is overpriced 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) selling DAX-30 Index futures and buying all the stocks in the DAX-30.

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Definitions:

Income

The money received by an individual or entity, typically measured over a certain period, for labor, services, or through investments.

Claret

A term primarily used in British English to refer to red Bordeaux wine.

Substitution Effect

The substitution effect occurs when consumers replace more expensive items with less costly alternatives, holding utility constant.

Price

The amount of money required to purchase a good or service, typically determined by supply and demand dynamics in the market.