Throughout the Chapter the Topic of Arbitrage Is Mentioned

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The Answer is Arbitrage is the practice of taking advantage of price differences in different markets to make a profit. In the context of futures and forward markets, arbitrage plays a crucial role in ensuring that prices remain consistent across different markets.

In futures and forward markets, arbitrageurs play a key role in keeping prices in line with each other by buying in the cheaper market and selling in the more expensive market, thereby narrowing the price gap. This helps to prevent price discrepancies and ensures that the market remains efficient.

Despite the limited opportunity for arbitrage profits, arbitrage exists because it is necessary for maintaining market efficiency. The presence of arbitrageurs helps to keep prices in check and prevents the market from becoming inefficient. Without arbitrage, there would be greater price discrepancies and market inefficiencies, which could ultimately harm market participants and the overall functioning of the market. Therefore, even though the opportunity for profit may be limited, the arbitrage function is essential for the smooth operation of futures and forward markets.

Throughout the Chapter the Topic of Arbitrage Is Mentioned

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