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The arena is one of the easiest ways to make money and you can use it from the start of the game. All you have to do is fight enemies in combat. You will eventually gain ranks which comes with a bigger prize for killing the enemies. To start, go into the bloodworks and talk to the Blademaster, get the armour, put it on and then ask him if you can fight. You can do anything in the arena apart from looting peoples bodies after you win. So spells, summoning and sneaking are all allowed.
Origin of the Gray Prince Quest
For the quest information click here