With no overall outlay of funds or assumption of Risk (in theory, at least!), arbitrage involves combining several transactions that ultimately Yield a Profit. Thanks to arbitrage, all prices for a given asset are equal at a given point in time. Arbitrage ensures fluidity between Markets and contributes to their liquidity. It is the basic behavior that guarantees the Efficient market."Arbitrage" arises whenever it is possible for an investor (the "arbitrageur") to enter into simultaneous trades which - once combined - result in locking up a Profit, therefore both exploiting the arbitrage opportunity, and contributing to the Market efficiency through the induced convergence of the once diverging prices. Arbitrage opportunities can arise where the same company has shares trading on several Stock exchanges, where the cash and futures contracts in relation with a commodity diverge, or where it is possible to arbitrage between various currencies and their related Interest rates.

(See Chapters 15, 20 and 30 of the Vernimmen)

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