Which of the following is an example of arbitrage?
A)An inventor of a new hydrocarbon cracking technology based on palladium buys this metal knowing that its price will rise when the technology is adopted.
B)A metals merchant is offered $108,000 in one year for $100,000 of palladium today,when the interest rate is 10%.
C)An investor,seeing that the price of palladium on the metals exchange in two different countries is slightly different,buys on one and sells on the other to make a profit.
D)A firm buys $250,000 of palladium today,with an option to sell it at $275,000 in one year if interest rates rise above 10%.
E)An investor buys palladium today hoping the price will increase and it can be sold for a profit.

Question

Quizplus · Accepted Answer

Arbitrage involves taking advantage of a price difference between two markets in order to make a profit. Option A involves making a speculative investment based on future technology adoption, while option B involves a simple interest rate calculation. Option D involves purchasing an option, which is a form of derivative investment. Option E involves a speculative investment based on market trends. Option C, on the other hand, involves exploiting a price difference between two markets for the same asset, which is the essence of arbitrage.

Which of the Following Is an Example of Arbitrage