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:

Bryophyte

Nonvascular plant; a moss, liverwort, or hornwort.

Retain Moisture

The ability to hold or keep water or moisture within an object or environment.

Gymnosperm Reproduction

The method of reproduction in seed-producing plants (gymnosperms) that do not form flowers, involving the release of pollen to fertilize ovules.

Pollen Grains

Microscopic structures produced by the male part of plants, containing male gametes, used for fertilizing the female ovules in the process of sexual reproduction.