Integrative Problems There Are Few Essay

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The profits would be higher than if the retailer procured those goods from an equivalent supplier in Dublin. The second type of arbitrage profit relates to merger and acquisition activity, but works on the same principle. Firms can earn arbitrage profits if they purchase a company for less than the current stock price -- or for less than the current book value. In this situation, again there is the opportunity to resell the company or its assets for more than was paid for them.

22-4. An example of simple arbitrage would be any situation where an asset can be purchased low on one market and sold high on another near simultaneously. This can be found on foreign currency markets (Barrett, 2010). For example, if a Hong Kong dollar can be purchased in Singapore for $6 USD and then sold in New York for $6.02 USD, there would be an arbitrage profit of $.02.

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Such opportunities are rare today, but once were relatively common when forex markets were less interconnected.

A triangular arbitrage uses the same principle, but would involve three currencies. An example of such a situation would be to effect an arbitrage transaction between HKD and USD via the Canadian dollar. In this example, it would be cheaper (in USD terms) to purchase Hong Kong dollars in Toronto with Canadian dollars. The Canadian dollars would be purchased with U.S. dollars. The final step in the transaction would be to convert the Hong Kong dollars back to USD in Toronto. If a profit can be made and these three transactions be conducted more or less simultaneously (so that there is no risk) then this would be a triangular arbitrage opportunity (Spaulding, 2010).

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