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A risk manager at an investment company is discussing stock index arbitrage with a group of junior risk analysts. The manager explains why an arbitrage trading strategy is an important factor in the efficient operation of financial markets and how an index arbitrage strategy is implemented. Which of the following statements is correct regarding stock index arbitrage?
A
It involves purchasing one stock index futures contract and selling a different stock index futures contract.
B
It involves purchasing a basket of stocks that are members of an index while selling other stocks in the same index.
C
It ensures that the price of the index will always correspond to the value of a portfolio of the underlying stocks, even if the portfolio is not tradable.
D
It involves purchasing or selling a stock index futures contract and taking the opposite position in the portfolio of stocks underlying the index.