Management and Organizational Studies 4312A/B Chapter Notes - Chapter 5: Compound Interest, Futures Contract, Arbitrage

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 4312A/B
• Professor: Shahbaz Sheikh

Document Summary

Investment asset is one that is held for investment purposes by significantnumbers of investors. Consumption good: held primarily for consumption and not usually for investment purposes. Borrowing shares from someone who owns them and selling them in the market in the usual way. At later stage, close out position by purchasing those shares back and returning. If shorting, the dividends gained/owed will have to be transferred to the account from which the shares were borrowed. Investor is required to maintain a margin account with the broker. Same tax rate on all net trading profits. Borrow money at same risk free interest rate they can lend money r - libor. Take advantage of arbitrage opportunities as they occur. Arbitrage opportunities when forward price is out of line with spot price for asset providing no income. If forward price is too high, you borrow money and buy asset. After the timeline, you sell the futures contract, and pay back the interest.