9780321818171_berk_ch03

Lets see why recall that these are competitive market

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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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