The interest rate at which the arbitrager borrows tends to be higher than the rate at which he lends,reflecting the
A)transaction cost paradigm.
B)midpoint.
C)bid-ask spread.
D)none of the options

Question

Quizplus · Accepted Answer

The bid-ask spread represents the difference between the price at which an asset can be bought and sold. In this case, the arbitrager is borrowing at a higher interest rate than he is lending, which would result in a negative spread, as he would need to make up for the difference in interest rates in order to make a profit. Therefore, the answer is C, the bid-ask spread.

The Interest Rate at Which the Arbitrager Borrows Tends to Be