If formula_37 is the spot price of an asset at time formula_38, and formula_8 is the continuously compounded rate, then the forward price at a future time formula_40 must satisfy formula_41. To prove this, suppose not. Then we have two possible cases. Case 1: Suppose that formula_42. Then an investor can execute the following trades at time formula_38:   The initial cost of the trades at the initial time sum to zero. At time formula_40 the investor can reverse the trades that were executed at time formula_38. Specifically, and mirroring the trades 1., 2. and 3. the investor   The sum of the inflows in 1.' and 2.' equals formula_53, which by hypothesis, is positive. This is an arbitrage profit. Consequently, and assuming that the non-arbitrage condition holds, we have a contradiction. This is called a cash and carry arbitrage because you "carry" the asset until maturity. Case 2: Suppose that formula_54. Then an investor can do the reverse of what he has done above in case 1. This means selling one unit of the asset, investing this money into a bank account and entering a long forward contract costing 0. Note: if you look at the convenience yield page, you will see that if there are finite assets/inventory, the reverse cash and carry arbitrage is not always possible. It would depend on the elasticity of demand for forward contracts and such like. Suppose that formula_55 is the time value of cash flows "X" at the contract expiration time formula_40. The forward price is then given by the formula:  The cash flows can be in the form of dividends from the asset, or costs of maintaining the asset. If these price relationships do not hold, there is an arbitrage opportunity for a riskless profit similar to that discussed above. One implication of this is that the presence of a forward market will force spot prices to reflect current expectations of future prices. As a result, the forward price for nonperishable commodities, securities or currency is no more a predictor of future price than the spot price is - the relationship between forward and spot prices is driven by interest rates. For perishable commodities, arbitrage does not have this  The above forward pricing formula can also be written as:  Where formula_59 is the time "t" value of all cash flows over the life of the contract. For more details about pricing, see forward price.