Which of the Following Is an Example of Arbitrage

question 38

Multiple Choice

Which of the following is an example of arbitrage?

• A) An inventor of a new hydrocarbon cracking technology based on palladium buys this metal knowing that its price will rise when the technology is adopted.
• B) A metals merchant is offered $108,000 in one year for $100,000 of palladium today, when the interest rate is 10%.
• C) An investor, seeing that the price of palladium on the metals exchange in two different countries is slightly different, buys on one and sells on the other to make a profit.
• D) A firm buys $250,000 of palladium today, with an option to sell it at $275,000 in one year if interest rates rise above 10%.

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Definitions:

Marginal Tax Rate

The rate at which the last dollar of income is taxed, indicating the percentage of additional income that will be taxed.

Marginal Tax Rate

The rate at which the next dollar of taxable income will be taxed.

Total Income

The sum of all earnings received by an individual or entity, including wages, salaries, benefits, and income from investments.

Total Taxes

The cumulative amount of taxes levied by a government on an individual, corporation, or other entity in a specified period, including income, sales, and property taxes.