Question : What is the term used to describe the simultaneous buying and selling of currencies to take advantage of differences in exchange rates in different markets?
Option 1: Currency hedging
Option 2: Currency speculation
Option 3: Currency pegging
Option 4: Currency arbitrage
Correct Answer: Currency arbitrage
Solution : The correct answer is d) Currency arbitrage
Currency arbitrage refers to the practice of taking advantage of differences in exchange rates between different markets to make a profit. It involves the simultaneous buying and selling of currencies in different markets to exploit temporary or small discrepancies in exchange rates. Traders engaging in currency arbitrage seek to profit from the price differentials by exploiting the inefficiencies in the market.
Currency arbitrage requires quick execution and the use of sophisticated trading strategies and technology to capitalize on the brief opportunities for profit. It is a form of speculative trading that aims to exploit short-term market inefficiencies.
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