Key Terms & Concepts — UPSC Mains
Arbitrage
GS3
"The practice of simultaneously buying and selling an asset in different markets to profit from a price difference; or ..."
Definition
The practice of simultaneously buying and selling an asset in different markets to profit from a price difference; or more broadly, exploiting a discrepancy between systems, regulations, or information
⭐ Significance for UPSC
Important for GS3 (economy, financial markets). Two key forms: (1) Financial arbitrage — buying cheap in one market, selling expensive in another; (2) Regulatory arbitrage — using looser rules in one jurisdiction to avoid stricter ones elsewhere. SEBI regularly flags arbitrage strategies in the derivatives market.
Example / Context
Regulatory arbitrage — where companies exploit differences between jurisdictions' laws — has become a major concern for international tax authorities trying to curb profit shifting by multinationals.
Mains GS Relevance
GS Paper 3
Economy, Environment, S&T, Security
Subject