Unformatted text preview: the same asset is trading with different
prices, should not occur in a competitive market. Let’s see why. Recall that these are
competitive market prices, at which you can both buy and sell. Thus, you can make
money in this situation simply by buying gold for $1200 per ounce in New York and then
3 Many countries store their gold reserves five floors under the Federal Reserve Bank of New York building in
New York City. If a trade occurs, the physical gold is actually moved, but it is moved only a few feet from one
country’s compartment to another. Thus, transportation costs are insignificant even to these types of trades.
If you plan to visit New York, you can make an advance booking for a tour of the gold vault (see the Federal
Reserve Bank of New York website, www.ny.frb.org/aboutthefed/visiting.html). 03_ch03_berk.indd
03_ch03_berk.indd 80 12/15/11 8:08 PM Chapter 3 The Valuation Principle: The Foundation of Financial Decision Making 81 immediately selling it for $1300 per ounce in London. You will make $1300 $1200
$100 per ounce for each ounce you buy and sell. Tradin...
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This note was uploaded on 02/07/2014 for the course MIS 304 taught by Professor Mejias during the Spring '07 term at Arizona.
- Spring '07