Arbitrage in the foreign exchange market, international loans markets, and goods markets results in

Question

Quizplus · Accepted Answer

Arbitrage in these markets leads to the alignment of prices and rates due to the elimination of profit opportunities. This results in purchasing power parity (prices of goods are equal when expressed in the same currency), interest rate parity (differences in interest rates are offset by changes in exchange rates), and the law of one price (identical goods should sell for the same price in different countries, accounting for exchange rates).

Arbitrage in the Foreign Exchange Market, International Loans Markets, and Goods