Which of the following is an example of arbitrage?

A. A firm buys $250,000 of palladium today, with an option to sell it at $275,000 in one year if interest rates rise above 10%.

B. A metals merchant is offered $108,000 in one year for $100,000 of palladium today, when the interest rate is 10%.

C. An investor, seeing that the price of palladium on the metals exchange in two different countries is slightly different, buys on one and sells on the other to make a profit.

D. An inventor of a new hydrocarbon cracking technology based on palladium buys this metal knowing that its price will rise when the technology is adopted.

Question

Business

Cecelia Bartlett

20 November, 11:12

Which of the following is an example of arbitrage?

A. A firm buys $250,000 of palladium today, with an option to sell it at $275,000 in one year if interest rates rise above 10%.

B. A metals merchant is offered $108,000 in one year for $100,000 of palladium today, when the interest rate is 10%.

C. An investor, seeing that the price of palladium on the metals exchange in two different countries is slightly different, buys on one and sells on the other to make a profit.

D. An inventor of a new hydrocarbon cracking technology based on palladium buys this metal knowing that its price will rise when the technology is adopted.

+2

Answers (1)

Know the Answer?

Shiloh Burgess · Answer 1

Answer: Option (C)

Explanation:

In discipline such as finance and economics, arbitrage is referred to as or known as practice under which one takes advantage of the price difference in commodities between two markets, i. e. striking combination of deals that tends to capitalize when there is imbalance, and the profit is difference between the two market prices of the commodity. Therefore, from the given options we can state that option (C) is correct.