Question

Arbitrage is used successfully by many active securities investors. True statements about arbitrage include which of the following? (Select all that

apply.)
It is basically buying one market issue as you sell another.
It is a high-risk but highly profitable trading technique.
It can be a good way to increase portfolio value.
Transaction costs must be applied to the trades.

Answer 1

It can be a good way to increase portfolio value.

Step-by-step explanation:

Arbitrage trading involving buying an investment instrument in one market and simultaneously selling it in another. Arbitrage trading takes advantage of unadjusted/ unsynchronized prices (market inefficiency) in different markets. Stock XY may be trading at a price of $45.41 in market A and $45.51 in market B. An investor can buy the stock in Market A and, at the same time, sell it in market B, thereby gaining $0.10 per stock.

Arbitrate trading is a low-risk investment strategy, but its returns could be great. Trades are executed simultaneously, minimizing risk. Rewards are constant. Arbitrate trading is a good way of growing a portfolio due to its low-risk and almost guaranteed profits characteristics.