An equity index stands at **100** points and the one year equity futures price is **102**.

The equity index is expected to have a dividend yield of **4**% pa. Assume that investors are risk-neutral so their total required return on the shares is the same as the risk free Treasury bond yield which is **10**% pa. Both are given as discrete effective annual rates.

Assuming that the equity index is fairly priced, an arbitrageur would recognise that the equity futures are:

An equity index stands at **100** points and the one year equity futures price is **107**.

The equity index is expected to have a dividend yield of **3**% pa. Assume that investors are risk-neutral so their total required return on the shares is the same as the risk free Treasury bond yield which is **10**% pa. Both are given as discrete effective annual rates.

Assuming that the equity index is fairly priced, an arbitrageur would recognise that the equity futures are:

**Question 860** idiom, hedging, speculation, arbitrage, market making, insider trading, no explanation

Which class of derivatives market trader is **NOT** principally focused on ‘buying low and selling high’?

**Question 924** foreign exchange rate, forward foreign exchange rate, arbitrage, forward interest rate, no explanation

The yield curve in the United States of America and Australia is flat. Currently, the:

- USD federal funds rate is 1% pa;
- AUD cash rate is 1.5% pa;
- Spot AUD exchange rate is 1 USD per AUD;
- One year forward AUD exchange rate is 0.97 USD per AUD.

You suspect that there’s an arbitrage opportunity.

Which one of the following statements about the potential arbitrage opportunity is **NOT** correct?