An arbitrage is a strategy where
A)You buy one asset and sell another with a view to make a profit if the one you bought appreciates and the one you sold depreciates.
B)You construct a series of trades that lead to non-negative cash flows at all points in time and at least one positive cash flow.
C)You buy and asset with a view of selling it at a higher price.
D)You buy an overpriced asset and sell an underpriced one.

Question

Quizplus · Accepted Answer

Arbitrage involves taking advantage of discrepancies in prices between two or more assets or markets to make profit with no or minimal risk. Choice B correctly describes an arbitrage strategy by ensuring cash flows are non-negative at all points in time, and at least one positive cash flow. Choices A, C, and D do not entail a risk-free profit-making opportunity as arbitrage does.

An Arbitrage Is a Strategy Where