Arbitrage is a technique used to take advantage of differences in price in substantially identical assets across different markets. An arbitrageur will buy foreign currency, bonds, stocks and commodities cheap in one market to sell more expensively in another. For example, if wheat is cheaper in Chicago than in London he will buy in Chicago and sell in London. Similarly, if the same stocks trade at 100p on the New York Stock Exchange and 101p in Tokyo, he will buy the first and sell the second. A successful arbitrage trade like this will see no net cash flow and carries no risk of loss. As it exploits the inefficiencies of current prices, it also helps establish equilibrium in markets by removing them.
In the first of three interviews with Merryn Somerset Webb, Hugh Hendry, manager of the Eclectica Fund, talks about what it takes to be a good hedge fund manager – and how he learned to stop worrying and love central banks.
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Today in 1972, a man calling himself Dan Cooper parachuted from a hijacked Northwest Airlines Boeing 727 with $200,000 in cash. He has never been found.