The exploitation of security mispricing in such a way that risk-free economic profits may be earned is called
A)arbitrage.
B)capital-asset pricing.
C)factoring.
D)fundamental analysis.

Question

Quizplus · Accepted Answer

The definition given in the question matches with the concept of arbitrage, which involves taking advantage of market inefficiencies in order to make risk-free economic profits, thereby providing liquidity to the market and ultimately increasing market efficiency. Option B, capital-asset pricing, is a theory used to determine the expected return on an asset based on its level of risk, while factoring (option C) refers to a financial transaction in which a company sells its accounts receivables to a third party at a discounted price in order to convert them into immediate cash. Fundamental analysis (option D) refers to an approach to financial analysis that involves examining a company's financial and economic fundamentals in order to make investment decisions.

The Exploitation of Security Mispricing in Such a Way That