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Reading 38 EOC #5

So we believe the forward price should be $2.72, but it is actually $2.80. We enter a cash and carry arbitrage, okay. Now what I don’t understand is this whole paying and borrowing of storage costs. The payment of storage costs is a FV while the borrowed storage cost remains flat at .05. Can anyone make sense of this?

bpdulog
It is a bit misleading the table is presented.
What it means is:
You received 0.05 storage cost from someone in Dec, you lent it immediately (e.g., to the bank, -0.05 means outflow of money). A few months later (feb), the bank pays you back this amount plus interest (so you’ll receive 0.051005 from this lending act you did back in Dec).
Hope it is clearer.

TOP

Thanks, so instead of trying to interpret this weird chart, can I assume that the FV of all storage costs need to be calculated?

TOP

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