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arbitrage
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arbitrage

In business, exploitation of a difference in value between two markets to make a profit. An example would be a currency trader who exploits a marginal difference between the quoted price for sterling in two countries.

There is little risk involved with arbitrage because all the costs are known, and, provided the transaction costs do not exceed the difference between the two prices being exploited, a profit is guaranteed. The slight risk involved arises because the price may move against the arbitrageur before the deal is completed. Arbitrage helps to keep the value of a commodity or currency consistent worldwide.



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