NISM Series XVI - Commodity Derivatives Exam Notes
Page 21 Of 36
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Arbitrage involves making purchases and sales simultaneously in two different markets to profit from the price differences prevailing in those markets.
Spot versus futures arbitrage can be undertaken when the fair price of the futures contract is less than or more than the traded price of the futures contract
Cash-and-carry arbitrage refers to buying of a physical commodity with borrowed funds and simultaneously selling the futures contract. The physical commodity is delivered upon the expiry of the contract.
Cash-and-carry arbitrage can be done when the futures price of the commodity is more than the sum of spot price and the cost of carrying it till the expiry date
Reverse cash and carry arbitrage opportunity is for those who have asset holdings with them. The arbitrage opportunity can be explored when futures price of the commodity is less than the spot price + cost of carry
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