The law of one price states that the price of an asset in one country is exactly equal to the price of the identical asset in another country. The law of one price assumes that there are no costs related to a transaction, transportation, conversion (foreign exchange), and no manipulation of price from participants of the market.
Although the above assumptions are unrealistic, the law of one price also assumes that the price difference in two different country or markets is settled by arbitrage opportunity. A person can benefit from an arbitrage opportunity when an asset is available at a lower price and it can be sold at a higher price in another market. Ultimately the price will move to a price that is equal in all places.
Explain how the premium and discount are determined when assets are priced
Look again at Table 3.5. Suppose the spot interest
Look again at Table 3.5. Suppose that spot interest
Look at the spot interest rates shown in Problem 25. Suppose
Look again at the spot interest rates shown in Problem 25.
Look one more time at Table 3.5. /
A Starbucks coffee sells for 10 yuan in Beijing, China,
2.1. The best measure of the purchasing power of
Suppose you are shopping for a new automobile. You find the
In each of the following examples, the law of one price
