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Rohil Sanil Connel Fernandes Jaiswant Jaiswar Sanket Pandit Joel Correia Vinayak Bhosale

Meaning & Definition

The simultaneous purchase and sale of an asset. It is a trade that profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms. Arbitrage exists as a result of market inefficiencies.

Condition for Arbitrage

The same asset does not trade at the same price on all markets. Two assets with identical cash flows do not trade at the same price. An asset with a known price in the future does not today trade at its future price discounted at the risk-free interest rate

Types Of Arbitrage
Pure Arbitrage Spatial Arbitrage Near Arbitrage Speculative Arbitrage Merger Arbitrage Triangular Arbitrage

Few Examples
Suppose that the exchange rates in India are Rs.600=$10=7 and the exchange rates in London are 7=$12=Rs.720. One example of arbitrage involves the NSE Exchange and BSE. When the price of a stock on the BSE and its corresponding futures contract on NSE are out of sync, one can buy the less expensive one and sell it to the more expensive market. Sports arbitrage

Arbitrage is a fascinating process. Requires understanding of the markets, the processes and the risks involved, exploiting arbitrage , capital and infrastructure. The execution of an arbitrage trade today is fairly simple. However ,as derivatives get more complicated, the procedures employed for doing arbitrage will steadily get more complex. We have to rely on Computers and the speed and efficiency of the operator