Interest arbitrage transactions can be "covered" by long-term forward contracts,but the primary problem with long-term forward contract is that they:
A)are expensive.
B)are difficult to find.
C)do not guarantee the arbitrage profit.
D)offer a reduced level of liquidity.

Question

Quizplus · Accepted Answer

Long-term forward contracts offer reduced liquidity, as they generally cannot be easily sold or converted back into cash before their expiration date. While they may provide a way to cover interest arbitrage transactions, they can limit flexibility and may not guarantee a profit if market conditions or rates change significantly over the life of the contract. Therefore, option D is the best choice.

Interest Arbitrage Transactions Can Be "Covered" by Long-Term Forward Contracts,but