Arbitrage occurs when an entity purchases a good in the lower-priced market and sells it at the same time in the higher-priced market. The existence of trade costs would ____ opportunities for arbitrage.
A) lower
B) not affect
C) increase
D) completely eliminate

Question

Quizplus · Accepted Answer

The existence of trade costs would lower opportunities for arbitrage because the costs associated with trading could reduce or eliminate the profit margin that makes arbitrage attractive.

Arbitrage Occurs When an Entity Purchases a Good in the Lower-Priced