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Selling one forward contract

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The spot market price of premium olive oil is $30 per liter. A forward contract on 100,000 liters with a 12-month expiry is currently priced at $33.20 per liter. The one-year interest rate is 7% p.a. (continuously compounded) and it costs $0.50 per liter per year (payable at the beginning of each year) to store olive oil. You can make riskless arbitrage profit of $49,000 (to the nearest dollar) by buying 100,000 liters of physical olive oil, storing it and selling one forward contract. Is this statement true.

Reference no: EM132504102

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