Question

Suppose that for a certain commodity the forward price () is less than the expected future spot price ().  In this case, we can lock in an arbitrage profit by going long the forward contract.

T OR F

Answer 1

Answer is T.

If for certain commodity the forward price is less than the expected future spot price then we can lock in an arbitrage profit by going long the forward contract.

the above statement is true because going long the forward contract of a commodity means you will buy the commodity at forward price at the expiration of forward contract. if the forward price is less than the expected future spot price then you will buy the commodity at lower forward price and sell it in the market at higher expected future spot price. this way you can lock in an arbitrage profit.