Harbor City issued 6% tax-exempt bonds and used the proceeds to acquire federal government securities yielding 7%.After paying the interest on the tax-exempt bonds, the City cleared 1%.This is an example of

Question

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This is an example of arbitrage, where the city is taking advantage of the difference in interest rates between the tax-exempt bonds and the higher-yielding federal government securities to make a profit. However, this practice is generally frowned upon and can be considered risky as it depends on interest rate fluctuations and market conditions.

Harbor City Issued 6% Tax-Exempt Bonds and Used the Proceeds