Which of the following is an example of 'arbitrage'?
A)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.
B)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.
C)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%.
D)A metals merchant is offered $108 000 in one year for $100 000 of palladium today, when the interest rate is 10%.

Question

Quizplus · Accepted Answer

Arbitrage refers to buying an asset in one market and simultaneously selling it in another market at a higher price to make a profit from the price discrepancy. Option C and D involve financial instruments such as options and futures, which are not examples of arbitrage. Option B involves predicting future price movements based on technology adoption, which is not a guaranteed profit from price discrepancies in different markets. Option A involves buying and selling palladium in different markets at the same time to take advantage of the price difference, making it the only example of arbitrage.

Which of the Following Is an Example of 'Arbitrage