TRUE OR FALSE (GIVE SIMPLE REASONS) - The Law of One Price A) At any point...

TRUE OR FALSE (GIVE SIMPLE REASONS)

- The Law of One Price

A) At any point in time, the price of two equivalent goods trading in different competitive markets will be the same.

B) One useful consequence of the Law of One Price is that when evaluating costs and benefits to compute a NPV, we can use any competitive price to determine a cash value, without checking the price in all possible markets.

C) If equivalent goods or securities trade simultaneously in different competitive markets, then they will trade for the same price in both markets.

D) An important property of the Law of One Price is that it holds even in markets where arbitrage is possible.

Solutions

Expert Solution

A. TRUE- price of the equivalent goods will be equal in different countries according to law of One price.

B. TRUE- when evaluating cost and benefit to compute the net present value,we can use any competitive price to determine the cash value

C. TRUE- equivalent goods and securities will be trading at equal prices

D. FALSE- law of One price will not hold in market where arbitrage is possible.

jeff jeffy answered 1 year ago

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