The Effect of Arbitrage Transactions on Markets Can Best Be

question 20

Multiple Choice

The effect of arbitrage transactions on markets can best be described as:

• A)currency and money markets will be destabilized.
• B)those who need currencies for business and trade purposes will be excluded from the markets.
• C)interest rates and values of the currencies involved will tend to converge.
• D)regulators will eventually restrict the ability to engage in arbitrage transactions.

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Definitions:

Call Option

The right, but not the obligation, to buy an underlying asset at a specified strike price within a specified time frame.

Futures Contract

A binding contract to trade a certain commodity or financial asset at a fixed price, with the transaction set to occur on a specified date in the future.

Debt Securities

Financial instruments representing money borrowed that must be repaid, with terms defining the interest rate and maturity date.

Equity Securities

Financial instruments that represent ownership in a company, such as stocks, granting holders a claim on the company's assets and earnings.