If the Implied Repo Rate Is Lower Than the Borrowing $R _ { b }$

question 15

Multiple Choice

If the implied repo rate is lower than the borrowing rate $R _ { b }$ and the lending rate $R _ {\ell }$ for the same maturity, what strategy would you adopt to undertake an arbitrage?

• A) Buy the asset spot, sell it forward, lend at rate \(R _ {\ell }\) .
• B) Buy the asset spot, sell it forward, borrow at rate \(R _ { b }\) .
• C) Sell the asset spot, buy it forward, lend at rate \(R _ {\ell }\) .
• D) Sell the asset spot, buy it forward, borrow at rate \(R _ { b }\) .

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