Why Are Arbitrage Opportunities Short-Lived

question 46

Multiple Choice

Why are arbitrage opportunities short-lived?

• A)Federal regulations will kick in to restrict trade and effectively shut the opportunity down.
• B)Prices will fluctuate up and down as traders take advantage of the opportunity,resulting in the net present value (NPV)fluctuating between positive and negative values.
• C)Once investors take advantage of the opportunity,prices will respond so that the buying and selling price become equal.
• D)Arbitrage opportunities need a lot of information processing,which is very slow to arrive.
• E)Investors will stop taking advantage of them for fear of being caught by regulators.

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Definitions:

Grandiosity

An exaggerated sense of one's importance, power, or abilities, often present in psychiatric conditions.

Self-importance

The overemphasis on one's own worth, abilities, or significance often at the expense of consideration for others or reality.

Antisocial Personality Disorder

A mental health disorder characterized by a long-term pattern of disregarding or violating the rights of others.

Manipulates

The act of controlling or influencing someone or something, often in a skillful manner and sometimes with negative connotations.