An arbitrageur can borrow or lend money

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Reference no: EM131060020

The price of gold is currently $500 per ounce. Forward contracts are available to buy or sell gold at $700 for delivery in one year. An arbitrageur can borrow or lend money at 10% per annum. What should the arbitrageur do? Assume that the cost of storing gold is zero and that gold provides no income.

a) Borrow money, buy gold in the spot market, and sell gold forward.

b) Sell gold from inventory, lend money, and buy gold forward.

c) Borrow money, sell gold from inventory, and buy gold forward.

Reference no: EM131060020

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