The effect of arbitrage transactions on markets can best be described as:
A)currency and money markets will be destabilized.
B)those who need currencies for business and trade purposes will be excluded from the markets.
C)interest rates and values of the currencies involved will tend to converge.
D)regulators will eventually restrict the ability to engage in arbitrage transactions.

Question

Quizplus · Accepted Answer

Arbitrage transactions involve exploiting differences in the price of a particular currency or financial instrument across different markets. As a result of such transactions, the price of the asset in the two markets will tend to converge, leading to a more efficient and rational pricing of the asset. This convergence of prices is likely to have a stabilizing effect on the markets. Thus, option C is the correct answer. Options A, B, and D are incorrect because they do not reflect the impact of arbitrage transactions on the markets.

The Effect of Arbitrage Transactions on Markets Can Best Be