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FSOT Full Test Bank

Category - Economics

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What is arbitrage?

Making a profit by manipulating discrepancies between multiple markets
A system for arbitrating trade disputes
Buying and selling stocks through an intermediary
A system that determines the legality of major trades

Explanation

Answer: A - Arbitrage is making a profit by manipulating discrepancies between multiple markets. For example, if one shop is buying apples for a dollar a bag and another is selling apples for fifty cents a bag, buying from one and selling to the other gains fifty cents of profit per bag in arbitrage. Arbitrage is temporary; the two markets equilibrate as more people take advantage of the discrepancy between them.

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