Why do foreign exchange rates tend toward equality around the world?

Question

Quizplus · Accepted Answer

Foreign exchange rates tend toward equality around the world because of the actions of arbitrageurs. Arbitrageurs take advantage of any pricing discrepancies in different markets by buying in one market and selling in another, thus equalizing prices and reducing any potential profit. This arbitrage activity helps to align exchange rates across different markets and currencies. Central banks, stock markets, and commodity markets may have an impact on exchange rates, but they are not the primary drivers of exchange rate equalization.

Why Do Foreign Exchange Rates Tend Toward Equality Around the World