The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2

-Other things equal, the higher the deviations from purchasing power, the lesser will be the arbitrage opportunities.

Question

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2
 
-Other things equal, the higher the deviations from purchasing power, the lesser will be the arbitrage opportunities.

Quizplus · Accepted Answer

Higher deviations from purchasing power parity create more arbitrage opportunities, as traders can profit from the price differences between two markets.

The Figure Given Below Depicts the Foreign Exchange Market for British