Arbitrage ensures that the spot price of the currency will equal the forward price of the currency.

Question

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Arbitrage opportunities arise when the spot price of a currency is not equal to its forward price, and traders exploit this difference to make profit. The goal of arbitrage is to bring the spot price and forward price closer together by buying or selling the currency in different markets. Therefore, it is not guaranteed that the spot price of the currency will equal the forward price as a result of arbitrage activities.

Arbitrage Ensures That the Spot Price of the Currency Will