Suppose That You Trade a Forward Contract Today That Matures

question 10

Multiple Choice

Suppose that you trade a forward contract today that matures after one year.The forward price is $105 and the simple interest rate is 7 percent per year.If after six months from today,the spot price is going to be $125 and the value of the forward contract is $20,the arbitrage profit that you can make today by trading one forward contract and other securities is:

• A) 0
• B) $1.56
• C) $2.96
• D) $3.55
• E) None of these answers are correct.

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Definitions:

Economic Conditions

The overall state of a country or region's economy, characterized by factors like GDP growth, unemployment rate, and inflation.

Initial Recognition

The first accounting entry for an asset or liability, marking its introduction in the financial statements at its fair value.

Financier Lessor

An entity engaged in the business of leasing out assets, typically providing the finance to purchase the asset which is then leased to the user.

Lease Receivable

An asset representing the right to receive future lease payments from lessees under lease agreements, reflecting the value of the asset leased out.