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Jenish Project New2003

Jenish Project New2003

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Published by sumeet1011

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Published by: sumeet1011 on Oct 27, 2009
Copyright:Attribution Non-commercial


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 Chapter 1Introduction
Introduction of the study
A central idea in modern finance is the law of one price. This states that in acompetitive market, if two assets are equivalent from the point of view of risk and return, they should sell at the same price.If the price of the same asset is different in two markets, there will beoperators who will buy in the market where the asset sells cheap and sell in themarket where it is costly. This activity termed as arbitrage, involves thesimultaneous purchase and sale of the same or essentially similar security intwo different markets for advantageously different prices.Theoretical arbitrage requires no capital, entails no risk and appears to be aneasy way of earning profits. However, real–world arbitrage calls for largeoutlay of capital, entails some risk and is a lot more complex than thedefinition suggests. A major weak link in India’s financial sector today isinadequate knowledge about arbitrage..
1.2 Object of the study
Part of Masters of Business Administration curriculum to have practicalexposure to the actual competitive environment.
1.3 Objective of the study
To know the concept of arbitrage.
To observe arbitrage trading practically.
To know how to earn risk free profit.
1.4 Rational of the study
Arbitrage trading related to NSE & BSE stock exchange.
While doing the study proper information was not given as they have toconcentrate on the market trading.
Theoretically the concept is very easy to understand but practically its verytuff.
The time span for studying the concept is very less. 
An arbitrage opportunity is the opportunity to buy an asset at a lower pricethen immediately selling it on a different market for a higher price.
In an economics and finance, arbitrage is the practice of taking advantage of a price differential between two or more markets: combinations of matchingdeal are struck that capitalize upon the imbalance, the profit being thedifference between the market price. When used by academics, an arbitrage istransaction that involves no negative cash flow at any probabilistic or temporalstate and a positive cash flow in at least one state; in simple terms, a risk-free profit. A person who engages in arbitrage is called an arbitrageur. The term ismainly applied trading in financial instruments.If the market price do not allow for profitable arbitrage, the prices are said toconstitute an arbitrage equilibrium or arbitrage-free market.
1.8 Arbitrage is possible when one of three conditions is met
The same asset does not trade at the same price on all markets ("the law of one price").Two assets with identical cash flows do not trade at the same price.An asset with a known price in the future does not today trade at its future pricediscountedat therisk-free interest rate(or, the asset does not have negligible costs of storage; as such, for example, this condition holds for grain but not for securities).

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