- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 4. Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives
- Subject 2. Costs and Benefits Associated with Owning the Underlying
CFA Practice Question
Which of the following is negatively related to the forward price?
B. Carrying benefits
C. Spot price
A. Interest rate
B. Carrying benefits
C. Spot price
Correct Answer: B
Ft(T) = FVt,T(St + costst - benefitst)
The cost of carry may include costs, such as storage and insurance for physical commodities, or benefits of ownership, such as dividends for stocks and interest for bonds. Foreign exchange represents a special case in which the cost of carry is the interest rate differential between two currencies.
User Contributed Comments 2
| User | Comment |
|---|---|
| khalifa92 | carry benefits include dividends interest and convenience yield |
| bushi | Forward prices maybe greater than or less than the underlying spot price, depending on the specific cost of carry associated with owning the underlying asset. |