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

Suppose that the yield curve in the United States of America and Australia is flat and that the current:

- 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?