The arbitrage can be best described as:

A. Earning risk-free rate without taking any risk
B. Earning risk-adjusted profit for taking the risk
C. Earning profit at no risk and no capital investment

Correct Answer: C

A risk-free rate can be earned by investing in a risk-free asset. One is expected to earn risk-adjusted risk for taking the risk. The arbitrage is earning a profit at no risk without any capital investment.