What is general arbitrage strategy

Assignment Help Financial Management

Reference no: EM132045301

You have the following market data.

Spot price of the Japanese Yen is $0.009185.

Underlying asset for the Japanese Yen futures contract is 12,500,000 Yen.

3-month Japanese LIBOR rate is 2.14% per year, and the 3-month U.S. LIBOR rate is 2.76% per year. Both rates are continuously compounded.

Japanese Yen futures contract that expires in 3 months has a futures price of $0.009030.

What is the general arbitrage strategy?

A. Take a short position in the futures contract, borrow yen at the Japanese risk-free rate, sell short yen in the spot market, and invest the sales proceeds at the U.S. risk-free rate.

B. Take a long position in the futures contract, borrow yen at the Japanese risk-free rate, sell yen in the spot market, and invest the sales proceeds at the U.S. risk-free rate.

C. Take a long position in the futures contract, buy yen in the spot market, borrow at the U.S. risk-free rate to finance the purchase, and invest yen at the Japanese risk-free rate.

D. Take a short position in the futures contract, buy yen in the spot market, borrow at the U.S. risk-free rate to finance the purchase, and invest yen at the Japanese risk-free rate.

E. No arbitrage opportunity currently exists.

Reference no: EM132045301

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