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If the actual forward is Rs 210 while theoretical forward is Rs 206, the arbitrage strategy is to:
AHold spot only without entering forward
BShort the spot and buy the forward
CBuy spot and short the forward (cash-and-carry)
DAvoid arbitrage as the gap is too small to act on
Answer & Solution
Correct answer: C. Buy spot and short the forward (cash-and-carry)
1. Identify what the question asks: this concept maps to cashandcarry (§4).
2. Apply the framework or formula relevant to the topic.
3. Eliminate distractors and arrive at the correct option (C).
_Source: ICAI BoS CA Final Paper 2, Ch 9 "Derivatives Analysis and Valuation"_
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