Which concept describes buying low and selling high across markets?

• A. Hedging
• B. Speculation
• C. Arbitrage
• D. Diversification

Answer: (C)

Arbitrage is about exploiting price differences for the same asset across different markets. By buying where the price is low and selling where it’s higher, you lock in a risk-free profit if transaction costs and execution risk are manageable. This activity helps align prices between markets and relies on momentary inefficiencies rather than predictions about future price movements. Hedging aims to reduce risk rather than profit from cross-market gaps; speculation bets on price changes and carries risk; diversification spreads investments to reduce risk rather than capturing price differentials.