The net effect of such a strategy is to equalize the futures price and the theoretical price (fair value) of the product. Here is an example of index arbitrage. You observe today that the value of an...

The net effect of such a strategy is to equalize the futures price and the theoretical price (fair value) of the product. Here is an example of index arbitrage. You observe today that the value of an equity index is $100 and the cost of borrowing 3%. Assuming no-arbitrage conditions, the (no-arbitrage) futures price of the index should be $103 (or $100 × 1.03).