Arbitrage

Summary of Arbitrage

The practice whereby foreign exchange or commodities are purchased in one market at lower cost and rapidly traded off in another, higher cost market. For example, if the pound sterling sells for $1.50 in Paris, but only $1.45 in New York, an arbitrageur could buy sterling in New York and immediately sell it in Paris at a profit, so long as the cost of performing the transaction does not exceed the difference between the market rates.

(Main Author: William J. Miller)

Arbitrage and International Trade Economy

In relation to international trade economy, Christopher Mark (1993) provided the following definition of Arbitrage: The purchase of commodities or foreign exchange in one country or market, followed by promptly re-selling in another market for a higher price.

Definition of Arbitrage in International Trade

The following is a concept of Arbitrage in the context of international trade law, from the Dictionary of International Trade (Global Negotiator): The simultaneous buying and selling of the same commodity or foreign exchange in two or more markets in order to take advantage of price differentials. See hedging.

Literature Review on Finance: Arbitrage

In the Encyclopedia of Public Administration and Public Policy, [1] Susan MacDonald offers the following summary about the topic of Arbitrage in Finance: In the market, arbitrage is not only a source of profit for the powerful few, it has historically provided liquidity for corporate actions, contributed to market efficiency, and played an equalizing role through the law of one price. Arbitrage has played a different role in the public sector. In both sectors, arbitrage involves a sale and a purchase—at least nominally. But in the public sector, state and local governments borrow money (sell bonds) and then invest the proceeds (purchase financial instruments)—there is no equivalent sale and purchase of an identical financial instrument, as in the private sector. Also, in the private sector, arbitrage serves the broader community as well as those directly involved in producing it; by contrast, in the public sector, the more powerful allow arbitrage but tax it at 100% and, in the words of Chief Justice Marshall, thus destroy it.

Description of Arbitrage

Arbitrage

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See Also

• Bond

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See Also

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Notes and References

1. Entry about Finance: Arbitrage in the Encyclopedia of Public Administration and Public Policy (2015, Routledge, Oxford, United Kingdom)

See Also

Further Reading

• Global Encyclopedia of Public Administration, Public Policy, and Governance (2018, Springer International Publishing, Germany)

Hierarchical Display of Arbitrage

Finance > Financial institutions and credit > Banking
Law > Justice > Judicial proceedings > Arbitration

Arbitrage

Concept of Arbitrage

See the dictionary definition of Arbitrage.

Characteristics of Arbitrage

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Resources

Translation of Arbitrage

• Spanish: Arbitraje financiero
• French: Arbitrage financier
• German: Arbitrage
• Italian: Arbitraggio finanziario
• Portuguese: Arbitragem financeira
• Polish: Arbitraż finansowy

Thesaurus of Arbitrage

Finance > Financial institutions and credit > Banking > Arbitrage
Law > Justice > Judicial proceedings > Arbitration > Arbitrage

See also

• Arbitration