Cash and carry arbitrage explains the determination of

A. Forward Rates for currencies

B. Spot rates for currencies

C. Both forward and spot rates for currencies

D. Penalty for non-execution of forward contracts

Answer: Option A

Solution(By Examveda Team)

Cash and carry arbitrage explains the determination of Forward Rates for currencies. Cash-and-carry-arbitrage is a market neutral strategy combining the purchase of a long position in an asset such as a stock or commodity, and the sale (short) of a position in a futures contract on that same underlying asset.