Which of the Following Statements Best Describes the Effect of Transaction

question 70

Multiple Choice

Which of the following statements best describes the effect of transaction costs on arbitrage and the Law of One Price?

• A)As long as the market is competitive,transaction costs will have no effect.
• B)When there are transaction costs,there will never be arbitrage opportunities.
• C)Prices can deviate but not by more than the amount of the transaction costs.
• D)Prices will be different in different competitive markets,and this difference usually exceeds the amount of the transaction costs.
• E)Arbitrage possibilities increase in the presence of transaction costs.

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Definitions:

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