(This spreadsheet is available on the website). This illustrates the cash-and-carry (enabled by a forward price that "trades rich") and a reverse cash-and-carry (enabled by a forward price that "trades cheap"). Please note:* Per normal backwardation, because the commodity has systematic risk, the forward price is less than the expected future spot price (the long forward expects a profit as compensation for bearing the risk)* If the forward trades rich, we sell (short) it under the cash-and-carry and we buy the spot with borrowed money. * If the forward trades cheap, we buy (long) it under the reverse and short the spot, lending the short proceeds.
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