ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Two-point arbitrage: A two-point arbitrage is a simple trading technique where a trader buys a security in one market and sells it at a higher price in a geographically different market. According to the dominant economic theory, the exchange rate of a currency should be the same all across the world.

Detailed explanation-2: -Two-point arbitrage involves profiting from price differences in two geographically different markets. When the direct quote and the cross quote for each possible pair of currencies are equal, there is no opportunity for three-point arbitrage.

Detailed explanation-3: -trading of foreign exchange …or more exchange centres (two-point arbitrage or multiple-point arbitrage). For example, assume that Country A’s sovereign is exchanging at two to the dollar in New York City, while Country B’s franc is valued at five to the dollar.

Detailed explanation-4: -Locational arbitrage can be defined as the act where an investor tries to exploit the minor exchange rate differences for a given currency pair between multiple banks for generating a profit.

Detailed explanation-5: -Forex arbitrage is the strategy of exploiting price disparity in the forex markets. It may be effected in various ways but however it is carried out, the arbitrage seeks to buy currency prices and sell currency prices that are currently divergent but extremely likely to rapidly converge.