Arbitrage is the practice of taking advantage of a price difference between two or more markets, striking a combination of matching deals that capitalize upon the imbalance, with the profit being the difference between the market prices.

A. Is riskless: This is true. Arbitrage trades are designed to be riskless, as they involve simultaneous buying and selling in different markets to take advantage of price differences.

B. Requires an initial investment: This is not necessarily true. While some arbitrage trades may require an initial investment, others may not. For example, in a risk arbitrage, an investor might buy shares in a company that is the target of a takeover bid, hoping to profit when the share price moves closer to the offer price. This would require an initial investment. However, in a pure arbitrage, an investor might simultaneously buy and sell the same security in different markets, exploiting a price difference. This would not require an initial outlay of capital, as the purchase is funded by the sale.

C. Requires no initial outlay of capital: This can be true in some cases, as explained above.

D. Makes a profit: This is true. The goal of arbitrage is to make a riskless profit by exploiting price differences.

Therefore, the answer is B. Requires an initial investment. This does not always describe an aspect of an arbitrage trade.

Question

Arbitrage is the practice of taking advantage of a price difference between two or more markets, striking a combination of matching deals that capitalize upon the imbalance, with the profit being the difference between the market prices.

A. Is riskless: This is true. Arbitrage trades are designed to be riskless, as they involve simultaneous buying and selling in different markets to take advantage of price differences.

B. Requires an initial investment: This is not necessarily true. While some arbitrage trades may require an initial investment, others may not. For example, in a risk arbitrage, an investor might buy shares in a company that is the target of a takeover bid, hoping to profit when the share price moves closer to the offer price. This would require an initial investment. However, in a pure arbitrage, an investor might simultaneously buy and sell the same security in different markets, exploiting a price difference. This would not require an initial outlay of capital, as the purchase is funded by the sale.

C. Requires no initial outlay of capital: This can be true in some cases, as explained above.

D. Makes a profit: This is true. The goal of arbitrage is to make a riskless profit by exploiting price differences.

Therefore, the answer is B. Requires an initial investment. This does not always describe an aspect of an arbitrage trade.

Knowee AI · Accepted Answer

Arbitrage is the practice of taking advantage of a price difference between two or more markets, striking a combination of matching deals that capitalize upon the imbalance, with the profit being the difference between the market prices.

A. Is riskless: This is true. Arbitrage trades are designed to be riskless, as they involve simultaneous buying and selling in different markets to take advantage of price differences.

B. Requires an initial investment: This is not necessarily true. While some arbitrage trades may require an initial investment, others may not. For example, in a risk arbitrage, an investor might buy shares in a company that is the target of a takeover bid, hoping to profit when the share price moves closer to the offer price. This would require an initial investment. However, in a pure arbitrage, an investor might simultaneously buy and sell the same security in different markets, exploiting a price difference. This would not require an initial outlay of capital, as the purchase is funded by the sale.

C. Requires no initial outlay of capital: This can be true in some cases, as explained above.

D. Makes a profit: This is true. The goal of arbitrage is to make a riskless profit by exploiting price differences.

Therefore, the answer is B. Requires an initial investment. This does not always describe an aspect of an arbitrage trade.

Which of the following does not describe an aspect of an arbitrage trade?A.Is riskless. B.Requires an initial investment. C.Requires no initial outlay of capital. D.Makes a profit.

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