- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 51. Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives
- Subject 2. Costs and Benefits Associated with Owning the Underlying
CFA Practice Question
As the carry costs increase, the forward price ______.
A. increases
B. decreases
C. flunctuates (may increase or decrease)
Explanation: Carry costs increase the carry burden of the arbitrageur. In other words, the costs make it more costly to carry and hence the forward price is higher.
How about the case where the storage cost is enormously high?
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