Description
Arbitrage
In this paper, using 3 outside sources, discuss how arbitrage works, how an investor could use that to profit, and how the concept of market efficiency could hamper its effectiveness. You should be able to find an almost unlimited supply of resources on this one.
The paper should be 3 pages and length and on the 4th page, list your references. I do not require a formal citation format, simply give me the source of you information.
Explanation & Answer
Here you go, please let me know if you need any revisiosn!
Running Head: ARBITRAGE
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Arbitrage
Instructor
Class
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ARBITRAGE
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For a company to profit from a difference in price, they will utilize the simultaneous
arbitrage purchase of their sales on any given asset. Such arbitrage will then exist because it
becomes a result of the market inefficiencies. Arbitrage sets the platform for a mechanism to
ensure that the prices aren’t substantially from what is known as the fair value over a period
(Daniel, K. D., 2001). Given the advantages in technology, a difficulty comes into existence
from the pricing errors throughout the market. The computer trading systems will monitor the
fluctuations throughout instruments that are similar.
The inefficiencies that become known through this process are then acted upon in an
appropriate and timely manner. For example, if Apple is trading twenty-dollars with the LSE, at
the same given moment Apple will be trading with another exchange group at a rate of twenty
dollars and five cents (Daniel, K. D., 2001). This trader can then purchase the stock from the first
investment immediately following the same share while making a profit of five cents. This
purchaser can also continue to exploit this arbitrage until the first investment runs out, or until
the other adjusts ...
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