A ________ in the foreign exchange market leads arbitrageurs to act, with the result that the forward exchange rate changes.

Question

Quizplus · Accepted Answer

A riskless arbitrage situation in the foreign exchange market provides a guaranteed profit opportunity without risk due to discrepancies in currency prices. Arbitrageurs exploit these opportunities, leading to changes in the forward exchange rate as they buy undervalued currencies and sell overvalued ones, thus restoring market equilibrium.

A ________ in the Foreign Exchange Market Leads Arbitrageurs to Act