The net cost of holding an asset until a future date, including financing and storage less any income. It links the spot price to the forward price.
Where you will meet it
Cost of carry comes up in 5 learning outcome notes across the FRM syllabus.
A few of them:
Pricing Financial Forwards and Futures FRM Part I · Financial markets and products
“It relates to spot through the cost of carry.”
Commodity Forwards and Futures FRM Part I · Financial markets and products
“A commodity forward is priced by the cost of carry, with all rates continuously compounded and T in years: F0 = S0 × e^((r + λ − c) × T).”
Commodity Forwards and Futures FRM Part I · Financial markets and products
“A cash-and-carry arbitrage works when the forward price is above the full cost of carry, which is the spot price compounded at the risk-free rate plus the storage costs carried to expiry.”
Commodity Forwards and Futures FRM Part I · Financial markets and products
“In the cost of carry model, the forward price of a commodity held for storage and use is F = S × e^((r + λ − c)T).”
GARP does not endorse, promote, review, or warrant the accuracy of the products or services offered by Charta Learning, nor does it endorse any pass rates claimed by Charta Learning. Further, GARP is not responsible for any fees or costs paid by the user to Charta Learning. FRM® and GARP® are registered trademarks owned by the Global Association of Risk Professionals, Inc. The questions, explanations and study notes are written for this product and are not GARP curriculum material.