Consider the "reverse cash and carry trade" where you buy the futures contract, short sell Asset XYZ, and invest or lend at a rate of r until the settlement date. In computing the value "from settlement of the futures contract," which of the below statements is TRUE?

Question

Quizplus · Accepted Answer

The correct answer is D, "None of these," because the statements provided do not accurately describe the process or outcomes of a reverse cash and carry trade. In a reverse cash and carry trade, you buy futures, short sell the asset, and lend or invest the proceeds. The value from settlement involves covering the short position with the futures contract, not directly receiving proceeds from the sale of Asset XYZ or a payment from investing in Asset XYZ as described in options A and B. Option C's equation is also incorrect in the context of reverse cash and carry arbitrage calculations.

Consider the "Reverse Cash and Carry Trade" Where You Buy