The Ultimate Arbitrage Quiz
by Staff
You love going to Sunday markets and garage sales. You especially love the idea of looking around for bargains at one venue and then reselling them at another, making yourself a nice, tidy profit. Did you know this form of trading has a name? It's called arbitrage and it's as old as time. Take the time now to answer everything you always wanted to know about arbitrage.

What element of risk is entailed in simple arbitrage?

  • medium risk
  • high risk
  • none whatsoever

What is another word for "arbitrageur"?

  • buyer
  • trader
  • arbitration officer

A common example of arbitrage strategy is some people who trade on eBay and other:

  • Internet auction sites
  • electronic retailers
  • department stores

In sports betting, how does arbitrage operate?

  • Two different bettors will place bets with two different bookies.
  • A bettor will bet with two different bookies, each of which gives different odds on the same sporting event.
  • A bookie will give two different odds to two different bettors.

Where are you more likely to find types of arbitrage -- on the street or in a multi-million dollar corporation?

  • on the street
  • both
  • in a multi-million dollar corporation

How are financial markets designed to discourage arbitrage?

  • There are signs and advertisements in every financial market discouraging this behavior.
  • People who engage in arbitrage within open financial markets are hounded by the law.
  • Securities are priced evenly in all trading arenas.

What is the term for minor differences in financial markets?

  • undercuttings
  • discrepancies
  • mispricings

If there is a mispricing, how does a trader make a profit?

  • He puts shares up for sale before the mispricing is noticed.
  • He buys the shares at the higher price and sells them quickly at the lower price.
  • He buys the shares at the lower price and sells them quickly at the higher price.

All kinds of speculative arbitrage rely on techniques that magnify risk and reward for the investor. This is known as:

  • hedging
  • leveraging
  • marketing

One type of speculative arbitrage is statistical arbitrage. In what context is it used?

  • where there are mispricings of convertible bonds
  • in equity markets
  • where there are mispricings in interest rate securities