In the Absence of Arbitrage Opportunities, the Forward Contract Price

question 65

Multiple Choice

In the absence of arbitrage opportunities, the forward contract price should be equal to the current price plus

• A) contract price.
• B) the cost of carry.
• C) margin requirement.
• D) the price discovery rate.
• E) the convenience return.

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Definitions:

Demand Function

A mathematical representation showing the relationship between product demand and various factors like price, income, and preferences.

Supply Function

A relation that shows the quantity of a good or service that producers are willing and able to sell at each possible price, holding all other factors constant.

Equilibrium Quantity

The quantity of a good or service at which supply equals demand, and the market is in balance, without any excess supply or shortage.

Perfectly Elastic

A situation in economics where the quantity demanded or supplied changes infinitely in response to any change in price.