The Risk-Free Interest Rate Drops but the Futures on a Stock

question 18

Multiple Choice

The risk-free interest rate drops but the futures on a stock market index rises. Which of the following statements is the most accurate?

• A) There are arbitrage profits to be made by going long futures, short spot, and investing.
• B) There are arbitrage profits to be made by going short futures, long spot, and borrowing.
• C) The futures is overvalued but this may or may not mean an arbitrage opportunity is available.
• D) There is not enough information in the question to identify if there is an arbitrage or not.

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Definitions:

Genetic Drift

An evolutionary process marked by random variations in allele frequencies within a population across generations.

Existing Population

Refers to the current number of individuals of a particular species living in a particular region or habitat.

DNA to RNA

Describes the process of transcription, where the DNA sequence of a gene is copied into messenger RNA (mRNA), which is essential for protein synthesis.

Conversion

The process of changing something from one form or use to another, in religious context, it refers to adopting a new faith or belief system.