Asked by Tingting Cheung on Jun 04, 2024
Verified
One can profit from an arbitrage opportunity by
A) taking a long position in the cheaper market and a short position in the expensive market.
B) taking a short position in the cheaper market and a long position in the expensive market.
C) taking a long position in both markets.
D) taking a short position in both markets.
Arbitrage Opportunity
A situation in which it is possible to simultaneously buy and sell an asset or commodities in different markets to profit from price differences.
Long Position
The act of owning or buying an asset with the expectation that its value will increase over time.
Short Position
An investment strategy where an investor sells a security with the intention to buy it back later at a lower price, expecting the security's price to fall.
- Recognize opportunities for arbitrage and comprehend the fundamentals of arbitrage pricing theory.
Verified Answer
Learning Objectives
- Recognize opportunities for arbitrage and comprehend the fundamentals of arbitrage pricing theory.
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