Question

_ refers to exploiting price differences on identical or similar goods, services, assets or factors in different markets. Group of answer choices Externalization Internalization Rationalization Arbitrage Speculation

Answer 1

Arbitrage

Step-by-step explanation:

Arbitrage refers to exploiting price differences on identical or similar goods, services, assets or factors in different markets.

This ultimately implies that, arbitrage allows an individual to profit from the price difference between similar goods, commodity, securities or currency in different markets.

Basically, an individual might decide to almost simultaneously purchase a financial instrument such as a commodity, securities or currency and sell it in a different form or market.

For example, if a stock is trading at £80 on the London Stock Exchange (LSE) while it is trading for £81 on the Nigeria Stock Exchange (NSE) at the same time. John buy the stock on the LSE and sells the same shares immediately on the NSE and earns a profit of £1 per share. Thus, this is simply an arbitrage.

In conclusion, an arbitrage is a type of trade that is caused as a result of market inefficiency.