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Physical market price of premium olive oil

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The physical market price of premium olive oil is $30 per litre. A futures contract on 100,000 litres with settlement in 1 year is currently priced at $32.50 per litre. The one year interest rate is 4% p.a. (continuously compounded) and it costs $0.50 per litre per year (payable at the beginning of each year) to store olive oil.

You can make riskless arbitrage profit of $65,110 to the nearest dollar) by buying 100,000 litres of physical olive oil, storing it and selling one futures contract.

TRUE or FALSE?

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Reference no: EM132630952

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