Cost of Carry Model in Finance
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Questions and Answers

What is another name for the Cost of Carry model?

  • No-arbitrage model (correct)
  • Efficient market model
  • Asset pricing model
  • Replication model

    • What does the Cost of Carry model assume about efficient markets?

  • Efficient markets are not subject to trading by arbitrageurs.
  • Arbitrage opportunities cannot exist in efficient markets. (correct)
  • Efficient markets are not subject to mispricing.
  • Arbitrage opportunities can exist in efficient markets.

    • What happens when there is an opportunity to make money in the market due to mispricing?

  • Arbitrageurs start trading to profit from these mispricing. (correct)
  • The market becomes less efficient.
  • Prices remain misaligned across the products/markets.
  • Arbitrageurs do not take advantage of the mispricing.

    • What happens to the prices as a result of the trading by arbitrageurs?

    <p>The prices become aligned across the products/markets.</p> Signup and view all the answers

    Which of the following is a key assumption of the Cost of Carry model?

    <p>Prices will be aligned across products/markets in an efficient market.</p> Signup and view all the answers

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