A cash-and-carry arbitrage is not risk free unless a repo is available with a maturity equal to the entire life of the transaction.

Question

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A cash-and-carry arbitrage involves purchasing an asset in the spot market and simultaneously selling a matching futures contract. The profits from this strategy come from the difference between the spot price and the futures price. However, if a repo is not available with a maturity equal to the entire life of the transaction, the trader is exposed to the risk of not being able to finance their position for the entire duration of the trade. This can lead to losses if the spot price falls or if the trader is unable to roll over their financing. Therefore, a cash-and-carry arbitrage is not completely risk-free without access to such a repo.

A Cash-And-Carry Arbitrage Is Not Risk Free Unless a Repo