(1) arbitrage

The so-called arbitrage is a form of foreign exchange trading that uses the exchange rate difference of a currency between two or three different foreign exchange markets to buy and sell this currency in these foreign exchange markets respectively, thus earning the exchange rate difference income. The main forms of arbitrage are direct arbitrage and indirect arbitrage.

① Direct arbitrage. Direct arbitrage, also known as two-place arbitrage, refers to the trading behavior that foreign exchange traders buy cheap and sell expensive in two foreign exchange markets at the same time under the condition that the exchange rate of a certain currency in two different places is different, and earn the difference profit from it.

2 indirect arbitrage. Indirect arbitrage, also known as three-place arbitrage, refers to the trading behavior that arbitrageurs use the currency exchange rate differences in three or more foreign exchange markets at the same time, and at the same time buy low and sell high in these markets to obtain the exchange rate difference income.

(2) Arbitrage

Arbitrage activities mainly take two forms:

(1) "free arbitrage". Mainly refers to the use of the interest rate difference between the two markets to transfer short-term funds from the market with lower interest rate to the market with higher interest rate for investment, so as to seek spread income.

2 "throw-and-lose arbitrage". It means that arbitrageurs transfer funds from place A to place B to obtain higher interest, and at the same time sell long-term B currency in the foreign exchange market to prevent risks.

In the foreign exchange market, opportunities for arbitrage activities are often fleeting. Once the arbitrage opportunity appears, large banks and companies will quickly invest a lot of money, thus quickly eliminating the inconsistency between the spread between the two countries and the currency swap exchange rate between the two countries (that is, the difference between the forward exchange rate and the spot exchange rate). Therefore, in this sense, arbitrage objectively strengthens the integration of international financial markets and makes the short-term interest rates of the two countries tend to be balanced, thus forming a worldwide interest rate network. At the same time, arbitrage activities have also formed an organic link between interest rates and exchange rates of currencies in various countries, influencing and containing each other. From this perspective, arbitrage is actually an important force to promote international financial integration.