Arbitrage

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  • Taking advantage of price differentials in two or more markets to earn a profit. For example, if a good is selling at a higher price in one market and at a lower price in another market, speculators and others can purchase the good selling in the lower-priced market and then sell it in the higher-priced market and earn a profit. This opportunity for profit will eventually be eliminated because increased demand for the cheaper goods will eventually raise the price of the good in the lower-priced market to equal the price of the good in the other market. Arbitrage opportunities exist in many markets, including the foreign exchange market, where currencies can be bought cheaply in one market and sold in the expensive market. Arbitrage ...

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