In the Practice Problems to Reading 38, there seem to be slightly different notions about what transactions constitute a cash-and-carry arbitrage. For instance, in the solution to Problem 2, the cash-and-carry arbitrage results in a net cash outflow at Time 0 (because there there is no offsetting cash inflow from borrowing at Time 0). However, in Problem 3, the cash-and-carry arbitrage results in a zero cash outflow at Time 0 (because there is borrowing at Time 0 to fund the purchase at Time 0). I was unable to tell from reading Problems 2 and 3, a priori, whether to include the borrowing of funds at Time 0. Can some help me understand when a cash-and-carry arbitrage involves borrowing at Time 0 and when it does not involve borrowing at Time 0 (to fund the purchase)? Thank you.

I believe C&C trade is used normally done with zero cash flow upfront by borrowing 100% of your carry --> zero investment for you upfront since it is an arbitrage situation. The reason it is done without borrowing (thus net cash flow) at question 2 is that the question asks you to calculate your rate of return. Since you canâ€™t do that with 0 investment upfront (divide by 0) --> you have to do that GROSS of borrowing then subtract from cost of borrowing later on.