Under existing federal statutes, arbitrage, as it applies to state and local governments is
A) Illegal.
B) Illegal unless the government can demonstrate a "just cause" for engaging in it.
C) Legal in some circumstances, but the government may be required to remit arbitrage earnings to the federal government.
D) Illegal unless there is no more than a 2 percent difference between interest earned and interest paid.

Question

Quizplus · Accepted Answer

Arbitrage, in the context of state and local governments, is legal under certain conditions, but the government may be required to return any profits made from arbitrage to the federal government. This is to prevent governments from profiting unduly from the difference between the interest they earn on invested bond proceeds and the interest they pay on the bonds.

Under Existing Federal Statutes, Arbitrage, as It Applies to State