Which of the Following Questions Regarding Risk Arbitrage Is FALSE

question 46

Multiple Choice

Which of the following questions regarding risk arbitrage is FALSE?

• A) Once a tender offer is announced, the uncertainty about whether the takeover will succeed reduces the volatility of the stock price. This uncertainty creates an opportunity for investors to speculate on the outcome of the deal without bearing the risk of volatility.
• B) Traders known as risk-arbitrageurs, who believe that they can predict the outcome of a deal, take positions based on their beliefs.
• C) A potential profit arises from the difference between the target's stock price and the implied offer price, and is referred to as the merger-arbitrage spread.
• D) However, it is not a true arbitrage opportunity because there is a risk that the deal will not go through. If the takeover did not ultimately succeed, the risk-arbitrageur would eventually have to unwind his position at whatever market prices prevailed.

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World Trade Organization

An international organization that regulates international trade and ensures that trade flows as smoothly, predictably, and freely as possible.

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NAFTA

The North American Free Trade Agreement, a treaty between Canada, Mexico, and the United States that was designed to remove tariff barriers between the three countries.

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