A Person Buys X in One Market and Combines It

question 157

Multiple Choice

A person buys X in one market and combines it with Y purchased in another market. The combination of X and Y gives Z, which the person sells in a third market for a higher price than the sum of the prices of X and Y. Which theory of profit is most consistent with this example?

• A)Profit is the return to being alert to an arbitrage (broadly defined) opportunity.
• B)Uncertainty is the source of profit.
• C)Profit is the return to the entrepreneur as innovator.
• D)none of the above

---

Definitions:

Spot Rate

The current market price of a currency, security, or commodity available for immediate delivery.

Interest Rate Parity

A theory asserting that the difference between the interest rates of two countries is equal to the difference between the forward exchange rate and spot exchange rate.

T-Bills

Short-term government securities issued at a discount from their face value, maturing in one year or less.

Exchange Rates

The rate at which one currency can be exchanged for another, influencing international trade and economic relationships between countries.