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Assume You Find That the Price of a Futures Contract

question 71

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Assume you find that the price of a futures contract is below the price given by spot-futures parity. Assuming there are no carrying charges, to make an arbitrage profit, traders will _________ in the cash market and _________ in the futures market.


Definitions:

Equilibrium Price

The price point at which the supply of goods matches demand, leading to a stable market condition.

Income

The financial gain received from labor, capital, or the management of assets, usually measured over a certain period of time.

Tortilla Chips

A type of snack food made from corn tortillas cut into wedges and then fried or baked.

Equilibrium Price

The price at which the quantity of goods or services supplied is equal to the quantity demanded, leading to market balance.

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