Which of the following statements is correct?

Question

BlackTom AI · Accepted Answer

Arbitrage enforces price equality across markets because traders exploit temporary price differences to earn riskless profits, driving prices back into alignment.

1. Relevant knowledge points and concepts
- Arbitrage: simultaneous buying and selling of identical or equivalent assets in different markets to profit from price discrepancies, without net exposure to market risk.
- Market efficiency: prices reflect available information; arbitrage helps eliminate mispricings, contributing to efficiency.
- Hedging: reducing or eliminating risk exposure; can be done using derivatives or by taking offsetting positions in the underlying asset.
- Market makers vs. arbitragers: market makers provide liquidity and match buyers/sellers, while arbitragers seek price differentials.

2. Step-by-step reasoning
- If Asset A trades for $100 in Market X and $102 in Market Y, an arbitrageur buys in X and sells in Y simultaneously.
- This action increases demand (and price) in Market X and increases supply (and lowers price) in Market Y.
- Prices converge until no riskless profit remains; this mechanism reduces persistent mispricings, contributing to market efficiency.

3. Intermediate logical steps (no numeric calculation necessary)
- Price difference exists -> Arbitrage trade executed -> Supply/demand effects alter prices -> Differential disappears -> No-arbitrage condition restored.

4. Why the correct answer is correct
- "The process of arbitrage helps to ensure market efficiency" is correct because arbitrageurs remove price differentials, making prices more consistent across venues and more reflective of information.

5. Why the other options are incorrect
- "Hedging always involves the use of derivatives": false; hedging can use spot positions, insurance, diversification, or operational measures without derivatives.
- "Arbitrage is a long-term strategy": false; arbitrage is typically short-term and executed while mispricings exist.
- "Arbitragers match buyers and sellers in exchange for a small commission on each fx trade": false; matching buyers/sellers for a commission describes brokers or market makers, not arbitragers whose goal is profit from price differences.

6. Conclusion
The correct choice is: "The process of arbitrage helps to ensure market efficiency," which matches the provided answer.

Which of the following statements is correct? 单项选择题

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