Explore BrainMass

Explore BrainMass

    What should the arbitrageur do to make a profit on gold forward contracts?

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    The price of gold is currently $1300 per ounce. Forward contracts are available to buy or sell at $1400 for delivery in one year. an arbitrageur can borrow money at 6% per annum. What should the arbitrageur do? What is the arbitrage profit? Assume the cost of storing gold is zero and that gold provides no income.

    © BrainMass Inc. brainmass.com June 4, 2020, 2:16 am ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/arbitrageur-make-profit-gold-forward-contracts-449787

    Solution Preview

    What the arbitrageur do is:

    1. Borrow $1,300 for a year at 6%
    2. Use the $1,300 to buy an ...

    Solution Summary

    This solution identifies the six steps the arbitrageur needs to make a profit.

    $2.19

    ADVERTISEMENT