Question

Which of the following most accurately describes locational arbitrage?

a)Purchasing a currency at a location where the price is high and immediately selling it at another location where it the price is lower

b)Purchasing a currency at a location where it is cheaply priced and immediately selling it at another location where it is priced at the same rate as the original location

c)Purchasing a currency at a location where it is cheaply priced and immediately selling it at another location where the price is higher

d)Purchasing a currency at a location where it is cheaply priced and then selling it back to the same location at the same rate

Answer 1

Arbitrage opportunity is an opportunity which rises due to inefficiency in the market and mispricing of the asset. And the investor benefits from the mispricing by buying at low and selling at high without taking any risk.

Locational Arbitrage opportunity arises when an investor can purchase the security at a location in which the security is cheaply priced and immediately sell at a location where the price is higher.

Hence, according to the above question Option C is the answer.