International Parity Relationships and Forecasting Exchange Rates Flashcards
1
Q
Arbitrage
A
The act of simultaneously buying or selling the same or equivalent assets or commodities for the purpose of making certain or guaranteed profits
2
Q
How is the market said to be in Equilibrium?
A
The market is said to be in equilibrium when no profitable arbitrage opportunities exists. As long as there are profitable arbitrage opportunities, the market cannot be in equilibrium. Such well known parity relationships such as Interest Rate Parity and Purchasing Power Parity in fact represent equilibrium conditions.
