The term "arbitrage" refers to
A)buying low and selling high.
B)short selling high and buying low.
C)earning risk-free economic profits.
D)negotiating for favorable brokerage fees.

Question

Quizplus · Accepted Answer

Arbitrage is earning risk-free economic profits by exploiting market inefficiencies by buying and selling at different prices in different markets or by taking advantage of pricing discrepancies between two or more securities. Buying low and selling high (Option A) is a general investment strategy and not specific to arbitrage. Short selling high and buying low (Option B) involves borrowing shares to sell at a high price, hoping to repurchase them at a lower price and make a profit, which involves taking on risk and is not risk-free like arbitrage. Negotiating for favorable brokerage fees (Option D) is not related to arbitrage.

The Term "Arbitrage" Refers to