Which of the following statements is true?
A)Arbitrage means the inability to make a profit without taking risk.
B)Arbitrage means that an FI takes risks in order to make a profit.
C)Arbitrage means that an FI does not take any risks and thus does not make a profit.
D)Arbitrage means the ability to make a profit without taking risk.

Question

Quizplus · Accepted Answer

Arbitrage refers to the ability to make a profit without taking any risk. This is done by exploiting differences in prices or yields between two or more markets. The profit is realized by simultaneously buying and selling the same asset or security in different markets where the price or yield differential exists, without any exposure to market risk.

Which of the Following Statements Is True