• Is a term used in relative value analysis. The cash flow characteristics, when analyzed against a benchmark or comparison bond, suggest an under-valued security. This implies that the former security has arbitrage potential against the comparative security.
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| ||Arbitrage: The simultaneous buying and selling of a security at two different prices in two different markets, resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities. Perfectly efficient markets seldom exist.Strictly defined, buying something where it is Cheap and selling it where it is dear; for example, a bank buys 3-month CD money in the U.S. market and sells 3-month money at a higher rate in the Eurodollar market. In the money market, often refers: (1) to a situation in which a trader buys one security and sells a similar security in the expectation that the spread in yields between the two instruments will narrow or widen to his profit, (2) to a swap between two similar issues based on an anticipated change in yield spreads, and (3) to situations where a higher return (or lower cost) can be achieved in the money market for one currency by utilizing another currency and swapping it on a fully hedged basis through the foreign-exchange market.Is a form of trading which attempts to profit by discrepancies in price due to location, funding, volatility, communications, response to information, or other differences. Typically, the price differences are small and only the quickest, most cost efficient or funding efficient parties participate. Compare with Risk Arbitrage.|
| ||Crush spread: Is the purchase of soybeans against the sale of the processed products. In futures trading, it is the simultaneous purchase of soybean futures versus the sale of soybean oil and soybean meal futures. The spread differentials reflect the potential processing margins or profitability. Here, the spread implies that the cost of the raw commodity input, soybeans, is Cheap to its processed products. Compare to Reverse Crush Spread.|
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