CMA Final · Strategic Financial Management · Forwards and Futures
The spot price of gold is ₹60,000 per 10 grams. Storage cost is ₹600 per 10 grams per year payable at the end of the year, and the interest rate is 10% per annum (simple, annual). A 1-year futures contract is quoted at ₹67,500. Ignoring other costs, what is the arbitrage profit per 10 grams for a trader who buys spot and sells futures?
The arbitrage profit is ₹900 per 10 grams. The no-arbitrage futures price is 60,000 × 1.10 plus ₹600 storage, equal to ₹66,600. The quoted futures price of ₹67,500 is higher, so buying spot and selling futures locks in 67,500 − 66,600 = ₹900.
- A₹900Correct
- B₹1,500
- C₹0
- D₹6,900
Explanation
Cost of carry futures price = 60,000 × 1.10 + 600 = 66,600. Futures quoted at 67,500 is overpriced, so buy spot, sell futures. Profit = 67,500 − 66,600 = ₹900. Option ₹1,500 deducts the storage cost wrongly (67,500−66,000). Option ₹6,900 ignores interest.
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