The Law of One Price states that equivalent investment opportunities trading in different competitiv - Running head THE LAW OF ONE PRICE 1 The Law of

The Law of One Price states that equivalent investment opportunities trading in different competitiv

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Running head: THE LAW OF ONE PRICE1The Law of One PriceStudents NameInstitutional AffiliationCourseDate
THE LAW OF ONE PRICE 2The Law of One PriceThe Law of One Price suggest that the cost of products in two separate markets ought tobe similar when they are adjusted for the foreign exchange rate if not so there will be arbitrageprofit through purchasing low and having to sell the same products at a higher price. In case theLOOP holds for all the goods in the CPI basket, it is required that the prices of the entire basketof the products should be similar in the market, this is known as the Purchasing Power (PPP). PPstates that the overall prices levels in every market should be similar. This implies that the cost ofBrent crude oil that is produced in Europe and Texas should be the same in terms of dollars. From the three cases I think that the Law of One Price is does not do very well becausethe costs of a similar product can be different at different times in a market. Also, I think that the

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