CMA Final · Strategic Financial Management · Forwards and Futures
Spot gold is ₹60,000 per 10 g. The one-year futures price is quoted at ₹66,000. Borrowing and lending rate is 8% p.a., and storage cost of ₹600 per 10 g is payable at the end of the year. An arbitrageur buys spot, sells futures and borrows. The risk-free arbitrage profit per 10 g at year-end is:
The arbitrage profit is ₹600 per 10 g. The cost of carry is 60,000 x 1.08 = 64,800 for financing plus 600 storage, totalling 65,400. Delivering against the futures sale at 66,000 leaves a risk-free gain of 600.
- A₹600Correct
- B₹1,200
- C₹5,400
- D₹6,000
Explanation
Cost at year-end = 60,000 x 1.08 = 64,800 plus storage 600 = 65,400. Futures sale gives 66,000. Profit = 66,000 - 65,400 = ₹600. Ignoring storage gives ₹1,200, and ignoring interest gives ₹5,400 (66,000 - 60,600).
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