Arbitrage in the foreign exchange market and international loans markets and goods markets achieves all of the following except
A)the law of one price.
B)no round-trip profit.
C)interest rate parity.
D)purchasing power parity.
E)depreciation across all currencies.

Question

Quizplus · Accepted Answer

Arbitrage in the foreign exchange market and international loans markets and goods markets can achieve the law of one price, no round-trip profit, interest rate parity, and purchasing power parity, but it does not necessarily lead to depreciation across all currencies. The exchange rates may fluctuate due to various factors such as market speculations, economic policies, and geopolitical events. Therefore, arbitrage cannot guarantee currency depreciation across all currencies.

Arbitrage in the Foreign Exchange Market and International Loans Markets