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ARBITRAGE is the operation by which the merchant, banker, and the speculator make a profit out of the differences in price existing at the same time for the same thing upon different markets. The merchant may deal in commodities such as cotton or indigo ; the banker in money or bills ; the speculator in the same articles as the others, but most generally in stocks and shares. We will here consider arbitrage first from the point of view of the banker; secondly, from that of tie speculator. In Banking we necessarily include the operations of the Merchant when he has to deal with the remittance and receipt of money to and from foreign countries. And it is in banking that we see the national as well as international value of the system of arbitrage : it protects, to a very large extent, the metallic circulation of a state against the drainage of gold. Pounds sterling have their value upon the different money markets of the world—a value that is always minutely varying in a decreasing or an increasing degree about the sterling value, and so varying at the same time. Accordingly, the arbitrageurs, for so those are called who engage in this method of business, being in close telegraphic communication with the different marl ets, buy in the market where the price is low and sell simultaneously in the market where the price is high. The result is a very small rate of profit, and probably very large in amount because of the big dealing of the arbitrageur. The further result is the equalisation of price, which in its turn prevents the tendency of the gold to flow out of the country in which its price for the time being had been low. Arbitrage is either single or compound. It is the latter when the dealings are between more than three places. Simple arbitrage is, however, of the most general application, there being little speculation on the differ ences in prices at more than three places.

We will now deal with a simple arbitrage of exchange. Suppose a merchant in London wishes to pay a creditor in Paris, bills of exchange on Paris being at a premium in London ; that is to say, for example, a bill for X100 would only yield to the creditor 2518 francs instead of 2522 as ii would at par. He goes to his banker or elsewhere for advice. But if Im has a proper knowledge of the financial columns of his daily newspaper, he will look at the money article. There, in the second paragraph, he will,find the rates of discount in all the chief financial centres of the world. We will

assume that he sees there that in London bills on Amsterdam are at a discount, and that in Amsterdam bills on Paris are at a discounf also. He therefore knows what to do, and becomes an arbitrageur at once. He instructs his bank to purchase, or goes himself to an exchange bank and purchases a bill on Amsterdam, and therewith obtains an Amsterdam bill on Paris, which'? latter he sends to his creditor in Paris ; thereby remitting to Paris without having to pay the premium. Such operations are being conducted continually on a very large scale, and they finish by raising the price of paper upon Amsterdam in London, of paper upon Paris in Amsterdam, and by lowering the price of paper upon Paris in London.

On the Stock Exchange, an arbitrageur, say in London, being cabled by a correspondent in New York that the latter has bought Atchison's at 79i, endeavours at once to sell the same amount of the same stock in London at 801. Prices on the different exchanges being known to both parties through the cable, the probability is that the arbitrageur is previously known by his correspondent to be likely to effect the sale, and so make a profit of a half per cent. The profit is small in rate, but such dealings are usually on a very large scale. The closest attention must also be paid to the rate of exchange, loss of interest, insurance, transit, &2. ; or by careless ness or a mistake in calculation the margin of profit may be swallowed up. Arbitrage in this form is often carried on between different stock exchanges in the United Kingdom, the operations being confined to securi ties dealt generally in by all the exchanges. Such an arbitrage is called " shunting." It often occurs that the public stock of a state is at a low price on a foreign exchange, though at home there is an active demand for When such is the case there will be migration home of that stock from abroad, and a modification of the price. This occurred when Bismarck started a campaign against the credit of Russia. As the price of Russian stock was lowered at Berlin, the arbitrageurs in buying immediately large quantities thereof, and reselling it in Russia, France, and Holland, brought about the reimportation of the stock into Russia, lowered the exchange of the rouble, and brought about the exportation of corn. See EXCHANGE; MONEY ARTICLE ; MONEY MARKET.