ARBITRAGE OPERATION

                                                          Arbitrage operation

Arbitrage is the buying and selling of the same commodity in the different markets. A number of pricing relationship exist in the foreign market, whose violation would imply the existence of arbitrage opportunities-the opportunity o make a profit without risk or investment. These transactions refers to advantage derived in the transaction of foreign currencies by taking the benefit of difference in rates between two currencies at two different centers at the same time or of difference between cross rates and actual rates.

For example, a customer can gain from arbitrage operation by purchase of dollars in the local market at cheaper pricing prevailing at a point of time and sell the same for sterling in the London market. The sterling will then be used for meeting his commitment to pay import obligation from London.