Suppose that trades now require a transactions cost of $3 per ounce whenever spot gold is traded,a $2 per ounce one-time fee for trading forward contracts,but no charges for trading bonds.If you have to pay transactions costs,the arbitrage profit that you can make today by trading one forward contract and other securities is:

Question

Quizplus · Accepted Answer

The presence of transaction costs alters the potential arbitrage profit. Given the specific costs for trading spot gold and forward contracts, but no cost for trading bonds, the correct calculation of arbitrage profit, considering these transaction costs, would yield a result that fits the given options. The profit of $4.26 accounts for the costs associated with the transactions, indicating that despite these costs, there is still a profitable arbitrage opportunity.

Suppose That Trades Now Require a Transactions Cost of $3