A One Year Gold Futures Contract Is Selling for $641

question 1

Multiple Choice

A one year gold futures contract is selling for $641. Spot gold prices are $600 and the one year risk free rate is 6%.
-Based on the above data,which of the following set of transactions will yield positive riskless arbitrage profits?

• A) Buy gold in the spot with borrowed money and sell the futures contract
• B) Buy the futures contract and sell the gold spot and invest the money earned
• C) Buy gold spot with borrowed money and buy the futures contract
• D) Buy the futures contract and buy the gold spot using borrowed money

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Definitions:

Gross Profit

The difference between revenue and the cost of goods sold before accounting for certain other costs such as salaries, administrative expenses, and taxes.

Credit Terms

The conditions under which credit will be extended to a customer, including the repayment time frame and any applicable interest or discounts for early payment.

Credit Period

The amount of time allowed by a seller for a buyer to pay for a purchase, often used in trade credit agreements.

Source Documents

Original records that contain the details to support business transactions, such as invoices, receipts, and contracts.