To find the correct price of the futures contract, we use the formula:

$$F_{0,T} \geq (S_0 + U) \times (1 + r)^T$$ $$F_{0,T} = \left\{ 0.325 + \left[ 0.002 + 0.002(1.0025) + 0.002(1.0025)^2 \right] \right\} \times (1.03)^{3/12} = 0.3335$$

Since the actual futures price of 0.3368 is higher than the correct price, there is an arbitrage opportunity that can be exploited by selling the overpriced contract. The investor would want to sell the futures contract, borrow at the risk-free rate, and buy the spot asset. The investor would pay off the loan in three months with the proceeds from delivering the cotton against the futures and would have a risk-free profit.

(Book 3, Module 37.2, LO 37.b)