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Consider the Following Spot Exchange Rates: $1

question 27

Multiple Choice

Consider the following spot exchange rates: $1.60/£, ¥105/$, €1.6/$, and L2,020/$. Which one of the following prices for 1 troy ounce of gold seems to violate the law of one price if gold sells for $290 per troy ounce in the United States?


Definitions:

Vendors Sell

The act of offering goods or services to buyers in exchange for money or other forms of payment.

Long-run Equilibrium

A state in which all factors of production can vary, and economic agents have fully adjusted to any changes, leaving no incentive for further adjustments.

Perfectly Competitive Market

An economic market setup in which there are numerous buyers and sellers dealing in identical products with no obstacles for entering or leaving the market.

Long-run Equilibrium

The state in which all factors of production and costs are variable, and firms make neither excess profit nor losses, indicating stability in the market.

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