Whenever there is a difference in the same exchange rate offered in two markets, an arbitrageur would:
A) wait for the markets to come to equilibrium.
B) buy in the market where the currency is offered at the cheaper rate, and simultaneously sell the currency where the rates are higher.
C) sell the cheaper-rate currency in the home market.
D) not consider the trade, since prices would undoubtedly change before it could be executed.

Question

Quizplus · Accepted Answer

Arbitrageurs seek to profit from price discrepancies by simultaneously buying and selling the same asset in different markets. In this case, the arbitrageur would buy in the market where the currency is offered at the cheaper rate and sell in the market where the rates are higher, making a profit from the difference in prices. Waiting for the markets to come to equilibrium may take too long, while selling the cheaper-rate currency in the home market would not take advantage of the price discrepancy between the two markets. Choosing not to consider the trade is also not a viable option for an arbitrageur seeking profits.

Whenever There Is a Difference in the Same Exchange Rate