What should a trader do when
the one-year forward price of an asset is too low? Assume that the asset
provides no income.

Question

Answer

The trader
should short the asset, invest the proceeds of the short sale at the risk-free
rate, enter into a short forward contract to sell the asset in one year

Answer

The
trader should borrow the price of the asset, buy one unit of the asset and
enter into a short forward contract to sell the asset in one year.

Answer

The
trader should short the asset, invest the proceeds of the short sale at the
risk-free rate, enter into a long forward contract to buy the asset in one year

Answer

The
trader should borrow the price of the asset, buy one unit of the asset and
enter into a long forward contract to buy the asset in one year.

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What should a trader do when the one-year forward price of an asset is too low...

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