Obtain a market arbitrage position, Financial Management

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(a) One could obtain a market arbitrage position as follows: buy Honeywell shares as well as sell General Electric shares. If the merger gets place the Honeywell shares will convert to GE shares - i.e. these shares will become alike and at the present one can sell the expensive shares and make a profit.

(b) You don't need to deposit funds to take this position.

(c) You could borrow finances for this position. You would require to if you don't have any GE shares. If you had them after that you could engineer this short position through short selling them.

(d) This is dissimilar from the academic sense of the word arbitrage. That engages zero risk and infinite gain. Here we do experience a risk and our gains might be very high - but not infinite.

(e) You would be obtaining the risk that the merger really goes through successfully.


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