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Questions and Answers
What is another name for the Cost of Carry model?
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?
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?
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?
What happens to the prices as a result of the trading by arbitrageurs?
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Which of the following is a key assumption of the Cost of Carry model?
Which of the following is a key assumption of the Cost of Carry model?
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