In foreign exchange, variations in quotations among countries at any time are quickly brought into alignment through arbitrage activities.

Question

Quizplus · Accepted Answer

This statement is true. Arbitrage refers to the process of buying and selling currencies in different markets to take advantage of differences in exchange rates, and it helps to ensure that exchange rates stay relatively consistent across different countries. Whenever a currency becomes overvalued in one market, arbitrageurs will sell it and buy it in another market where it is undervalued, which will cause the exchange rate to adjust and the discrepancy to diminish.

In Foreign Exchange, Variations in Quotations Among Countries at Any