Arbitrage Quiz

25 July 2022
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10 test answers

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question
arbitrage
answer
simultaneous purchase and sale in different markets to achieve a profit
question
arbitrage makes sure you_____
answer
never lose money
question
main example of arbitrage
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gold market
question
you should buy ____ and sell _____
answer
low, high
question
in market equilibrium should there be an opportunity for profitable arbitrage? -why? what would there be for former and latter?
answer
no one could make profit by buying low (undervalued asset) and selling high (overvalued asset) excess demand for former/ excess supply for latter
question
is there a condition that requires that the price of gold must be the same in other countries?
answer
no there is no arbitrage condition for this
question
when is an asset over/ under valued? -what is the only value that matters?
answer
-overvalued- sell -undervalued- buy -relative value
question
what does the theory that there must be no opportunity for profitable arbitrage lead to
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derivatives
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what is a derivative? when will there be an opportunity for profitable arbitrage?
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value derived from the value of the underlying asset -when the price of the derivative does not have a relationship to the price of the underlying asset
question
in asset market equilibrium what conditions are equal -can we see this as an opportunity for arbitrage?
answer
the rate of return and present value conditions -no