The exchange rate between the British pound and the dollar is ≤ 1 = $1.50 and a jacket that retails for $75 in New York sells for ≤ 50 in London ($75/1.5 = ≤50). This reflects what?

Question

The exchange rate between the British pound and the dollar is ≤	1 = $1.50 and a jacket that retails for $75 in New York sells for ≤	50 in London ($75/1.5 = ≤50). This reflects what?

Quizplus · Accepted Answer

The given scenario reflects the law of one price, which states that in a perfect market where there are no transportation costs or trade barriers, the price of identical goods should be the same everywhere. In this case, the price of the jacket is the same in both New York and London when converted to their respective currencies, reflecting the law of one price.

The Exchange Rate Between the British Pound and the Dollar