Word of the Day

Saturday, April 16, 2005

arbitrage

\AR-buh-trahzh\ , noun;

The nearly simultaneous purchase of a good or asset in one market where the price is low, and sale of the same good or asset in another market where the price is higher.

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Quotes:

If the market exchange rate deviates from par, there is opportunity for arbitrage by exchanging the cheaper currency for gold, shipping the gold to the other country, converting the gold into the other currency, and converting the proceeds into the cheaper currency on the market.

-- Milton Friedman, Money Mischief

There are undoubtedly many arbitrage opportunities, where price transparency has failed to bring about price harmonisation.

-- Nunzio Quacquarelli, "Euro optimism", Guardian, May 28, 2002

Origin:

Arbitrage comes from the French, from Latin arbitrari, "to pass judgment," from arbiter, "witness, arbitrator, judge." One who practices arbitrage is an arbitrageur.