cost of carry forward contract
Suppose the spot price of wheat is 550 cents per bushel, the six-month forward price is 600, the riskless rate of interest is 5% p.a., and the cost of carry is 6% p.a. To execute an arbitrage, you borrow money, buy a bushel of wheat, pay to store it, and sell it forward.uppose the spot price of wheat is 550 cents per bushel, the six-month forward price is 600, the riskless rate of interest is 5% p.a., and the cost of carry is 6% p.a. To execute an arbitrage, you borrow money, buy a bushel of wheat, pay to store it, and sell it forward.