Which type of hedge fund may monitor the futures and spot markets to identify situations when prices in the two markets depart from the cost-of-carry model?

A) long -short equity
B) arbitrage
C) event-driven
D) global macro markets

Question

Which type of hedge fund may monitor the futures and spot markets to identify situations when prices in the two markets depart from the cost-of-carry model?

A) long -short equity
B) arbitrage
C) event-driven
D) global macro markets

Quizplus · Accepted Answer

Arbitrage hedge funds engage in costly search activities and the monitoring of markets to identify arbitrage opportunities,then act quickly to lock in arbitrage profits.An example is the futures-spot market relation,wherein the two markets are inherently linked,as the futures delivery price is based on the spot market price at contract expiry.The relation between prices in the two markets can be established,and is known as the cost-of-carry model.An arbitrage hedge fund may monitor the futures and spot markets to look for instances when prices in the two markets depart from the cost-of-carry model.

Which Type of Hedge Fund May Monitor the Futures and Spot