What effect does the process of arbitrage have on currency markets?
A)It interferes with the proper functioning of the currency markets.
B)It creates unnatural demand for currencies that are the subject of arbitrage transactions.
C)It makes them function properly and is responsible for the rational pricing of currencies.
D)It does not affect the currency markets because it involves both purchases and sales of the same currency.

Question

Quizplus · Accepted Answer

The process of arbitrage helps to ensure that currency markets function properly and that currencies are priced rationally by taking advantage of price discrepancies between different markets. This helps to bring markets into equilibrium by equalizing prices across different currencies and markets.

What Effect Does the Process of Arbitrage Have on Currency