commodity-forwards

Learning objectives: Explain the formula for pricing commodity forwards. Describe an arbitrage transaction in commodity forwards and compute the potential arbitrage profit. Define the lease rate and explain how it determines the no-arbitrage values for commodity forwards and futures. Describe...

In this chapter, the study notes mention the following paragraph regarding lease rate "The lease rate of gold varies with the supply of gold that can be borrowed along with the demand to borrow gold. Recall that when gold producers hedge future production, the banks on the other side of the...