describe and investment scenario in which arbitrage exists. in describing your example clearly explain what is meant by the term arbitrage.

Financial Math

Expert Solution

Arbitraging means an opportunity for the investor in which he can buy the similar securities on two different Markets and make a rate of return so it is reflecting that there are various markets on which similar securities are traded and there is a price discrepancy between the securities so arbitrageurs are always trying to capitalise upon that price discrimination between two different markets for the similar security.

Arbitraging will be existing in those scenarios when there will be different prices upon two different stock exchanges for the similar stocks or it will also existing when there will be two different prices for similar securities in two different markets at the exact point of time.

Like, if Reliance is trading on National Stock Exchange on 1100 and Reliance trading on Bombay Stock Exchange on 1110, so, arbitrageurs will be trying to exploit the gap of 10 rupees.

Arabitraging is a violation of Efficient market hypothesis and it is reflecting that there are incorrect pricing on different exchanges for similar stocks.

jeff jeffy answered 2 years ago

Explain what is meant by the term Arbitrage and why the idea of markets being arbitrage...

Explain what is meant by the term Arbitrage and why the idea of markets being arbitrage free is required for derivatives valuation?

Explain in your own words what is meant by the phrase “arbitrage in financial markets”. Specify...

Explain in your own words what is meant by the phrase “arbitrage in financial markets”. Specify how it relates to both interest rates and exchange rates.

Explain what is meant by the term perceived risk. Provide an example for each of the...

Explain what is meant by the term perceived risk. Provide an example for each of the six major types of risk and explain why understanding each type is important for marketers.

What is meant by the term sustainability and explain its 3 aspects? Include an example illustrating your comments.

The following is an extract from the latest sustainability report (2019) of the Woolworths Group: “It is through the power of partnerships that we will be able to amplify our impact and deliver on our bold ambitions to become...

explain what is meant by Hollywood Accounting, and why it exists

Explain what is meant by the term ‘linked genes’ with respect to homologous recombination. For example,...

Explain what is meant by the term ‘linked genes’ with respect to homologous recombination. For example, if an organism is heterozygous at two genetic loci on the same chromosome, in what way does the position of these alleles with respect to each other affect how they are transmitted to gametes during meiosis? You have read that chromosomes carry the basic genetic information required for all of our cells. Chromosomal abnormalities are the cause of various health conditions and can occur...

Explain, in your own words, what the Arbitrage Principle is and provide an example when it...

Explain, in your own words, what the Arbitrage Principle is and provide an example when it is violated. Discuss, in your own words, how the Arbitrage Principle relates to state prices and the Risk-Neutral Valuation Relationship.

In JAVA, Describe a scenario in which you would use a four-dimensional array. Clearly explain the...

In JAVA, Describe a scenario in which you would use a four-dimensional array. Clearly explain the purpose of each dimension of the array in that scenario.

. Explain in your own words what is meant by the term ‘price elasticity of demand’....

. Explain in your own words what is meant by the term ‘price elasticity of demand’. 2. Why is it important for business managers to understand price elasticity of demand? 3. When price elasticity of demand is greater than 1, we say that the good is: INELASTIC / ELASTIC / UNITARY ELASTIC / POSITIVELY ELASTIC 4. When price elasticity of demand is less than 1, we say that a good is: INELASTIC / ELASTIC / UNITARY ELASTIC / NEGATIVELY ELASTIC...

Describe what is meant by the term “greenhouse effect”. Indicate which species make the greatest contribution...

Describe what is meant by the term “greenhouse effect”. Indicate which species make the greatest contribution and describe their natural and manmade sources. Explain why the major components of air are ineffective greenhouse gases.

Question

describe and investment scenario in which arbitrage exists. in describing your example clearly explain what is meant by the term arbitrage.

Solutions

Expert Solution

Related Solutions

Explain what is meant by the term Arbitrage and why the idea of markets being arbitrage...

Explain in your own words what is meant by the phrase “arbitrage in financial markets”. Specify...

Explain what is meant by the term perceived risk. Provide an example for each of the...

What is meant by the term sustainability and explain its 3 aspects? Include an example illustrating your comments.

explain what is meant by Hollywood Accounting, and why it exists

Explain what is meant by the term ‘linked genes’ with respect to homologous recombination. For example,...

Explain, in your own words, what the Arbitrage Principle is and provide an example when it...

In JAVA, Describe a scenario in which you would use a four-dimensional array. Clearly explain the...

. Explain in your own words what is meant by the term ‘price elasticity of demand’....

Describe what is meant by the term “greenhouse effect”. Indicate which species make the greatest contribution...