Scenario: Sam Dearing, Budding International Financier
Sam Dearing is a summer intern in the arbitrage department at a prestigious Wall Street firm. Sam is hoping to be offered a full-time position at the firm after he graduates from college, and therefore, Sam knows that he must demonstrate a strong understanding of how exchange rates work.
-Sam's mentor at the firm told him that the ________ stipulates that an identical product must have an identical price in all countries when the price is expressed in a common currency.

Question

Quizplus · Accepted Answer

The law of one price stipulates that an identical product must have an identical price in all countries when the price is expressed in a common currency. It is a basic principle of international trade and finance, and is related to exchange rates and purchasing power parity theory, but is not synonymous with either of them. The Bretton Woods Agreement was a monetary agreement signed in 1944 that established the rules for the international monetary system following World War II.