The forward price of wheat for delivery in three months is, Ask an Expert

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The forward price of wheat for delivery in three months is $3.90 per bushel, while the spot price is $3.60. The three-month interest rate in continuously compounded terms is 8% per annum. Is there an arbitrage opportunity in this market if wheat may be stored costlessly? If there is an arbitrage opportunity, clearly state what condition must be satisfied to eliminate the arbitrage opportunity. What is the strategy followed to make a profit from the arbitrage opportunity? What is the profit expressed as a future value?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91886778

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