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CSEET · Economic and Business Environment · Indian Financial Markets

In the derivatives market, a participant who profits from price differences of the same asset in two different markets, with minimal risk, is called a:

Such a participant is an arbitrageur, who earns low-risk profit by simultaneously buying an asset in the cheaper market and selling it in the dearer one. Hedgers reduce existing risk and speculators take risk on price views, so neither fits this description.

  1. AArbitrageurCorrect
  2. BHedger
  3. CSpeculator
  4. DUnderwriter

Explanation

An arbitrageur exploits price discrepancies of the same asset between markets, buying in the cheaper and selling in the dearer. A hedger reduces existing risk and a speculator takes on risk expecting profit from price moves. An underwriter guarantees issue of securities.

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