If the euro/U.S.dollar exchange rate is 1.1€/U.S. $ in New York but 1.05€/U.S. $ in London, we should see:
A) people selling U.S. dollars and buying euros in New York and then selling those euros and buying $'s in London.
B) people selling euros and buying dollars in New York and then buying euros by selling dollars in London.
C) the price differential between the markets increase as people seek to take advantage of the situation.
D) the dollar should appreciate in New York relative to the euro.

Question

Quizplus · Accepted Answer

BArbitrage opportunities arise when there's a price differential for the same asset in different markets. In this case, traders can profit by buying euros with dollars in New York at a lower price (1.1€/U.S. $) and then selling those euros for dollars in London at a higher price (1.05€/U.S. $), and vice versa. This process is expected to continue until the exchange rates in both markets equalize, eliminating the arbitrage opportunity.

If the Euro/U