Question

An arbitrage is best defined as Multiple Choice a legal condition imposed by the CFTC. the act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making reasonable profits. the act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making certain guaranteed profits. none of the options

Answer 1

Answer:

The correct option reads "the act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making certain guaranteed profits."

Explanation:

An arbitrage typically is about taking advantage of price differentials which results in a guaranteed level of gains.

For instance,buying US dollars in one city and sending it via bank transfer to a buyer  in another city because the rate of exchange in the other city is higher ,there making an instant guaranteed profit resulting from the price differentials.

However, one of the reason for such is that information in one market might be  stale while the other market is up-to-date with market information.

Answer 2

Answer:

the act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making certain guaranteed profits.

Explanation:

The more available information, the lesser the possibility of arbitrage to exist. One of the few situations where arbitrage is still possible, is carry over trade in foreign exchange where a trader borrows money at a low cost and then purchases foreign currency. Then they invest the foreign currency in a market where interests are high, and after a while changes the money back into the original currency.

The only reason why arbitrage exists is because of market inefficiencies, so that traders benefit from simultaneously purchasing and selling the same good and making a profit out of it.