An arbitrage is a strategy where
A) You buy one asset and sell another with a view to make a profit if the one you bought appreciates and the one you sold depreciates.
B) You construct a series of trades that lead to non-negative cash flows at all points in time and at least one positive cash flow.
C) You buy and asset with a view of selling it at a higher price.
D) You buy an overpriced asset and sell an underpriced one.

Question

Quizplus · Accepted Answer

Arbitrage involves identifying and taking advantage of pricing inefficiencies in the market. The strategy involves creating a series of trades that lead to non-negative cash flows at all times and at least one positive cash flow. This ensures a riskless profit, regardless of the market conditions. Options A, C, and D do not fully capture the essence of arbitrage.

An Arbitrage Is a Strategy Where