CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

Good Z is priced on Market #1 at $150. The same good is priced on Market #2 at $125. Which of the following describe(s) the process that will eliminate the arbitrage profit?

I. Investors will purchase Good Z on Market #1 and drive the price up.
II. Investors will purchase Good Z on Market #2 and drive the price up.
III. Investors will sell Good Z on Market #1 and drive the price down.
A. I and II
B. I and III
C. II and III
Explanation: Investors will take advantage of the irrational pricing by buying Good Z at the lower price in Market #2 and selling it at the higher price on Market #1. The purchases in Market #2 will put upward pressure on the price. The sales in Market #1 will put downward pressure on the price. The process will continue until the prices on Markets #1 and #2 are equal.

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