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%.

Question

Quizplus · Accepted Answer

Arbitrage involves taking advantage of price discrepancies for the same asset in different markets. In this case, the investor is buying palladium at a lower price in one market and selling it at a higher price in another market to make a profit. The other options involve speculation or hedging, but not arbitrage.

Which of the Following Is an Example of Arbitrage