Which one of the following exploits differences between actual future prices and their theoretically correct parity values?
A) index arbitrage
B) marking to market
C) reversing trades
D) settlement transactions

Question

Quizplus · Accepted Answer

Index arbitrage involves taking advantage of differences between actual future prices and their theoretically correct parity values, which arise due to temporary mismatches in demand and supply in the cash and futures markets. Marking to market refers to the daily adjustment of margin requirements to reflect changes in the value of the underlying assets. Reversing trades involve buying or selling the same security in opposite directions to close out an existing position. Settlement transactions involve the actual transfer of cash or securities to settle a trade. None of these options exploit differences between actual future prices and their theoretically correct parity values like index arbitrage.

Which One of the Following Exploits Differences Between Actual Future