NISM Certifications · NISM-Series-XV: Research Analyst · Fundamental Analysis of Commodities
A gold futures contract trades at Rs 62,000 per 10 grams when the spot price is Rs 60,000. Financing and storage costs for the period total Rs 1,500 per 10 grams, and gold has no convenience yield. An arbitrageur who buys spot gold, sells the futures and holds to expiry would earn a risk-free profit per 10 grams of:
The profit is Rs 500 per 10 grams. Buying spot at Rs 60,000 and carrying it costs Rs 61,500 in total, while the futures is sold at Rs 62,000, so the difference of Rs 500 is locked in through cash-and-carry arbitrage.
- ARs 500Correct
- BRs 2,000
- CRs 1,500
- DRs 3,500
Explanation
Fair futures price = 60,000 + 1,500 = Rs 61,500. The futures trades at Rs 62,000, which is Rs 500 above fair value. Cash-and-carry arbitrage locks in 62,000 - 60,000 - 1,500 = Rs 500. Rs 2,000 ignores carrying costs; Rs 3,500 adds them wrongly.
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