Which of the Following Statements Regarding the Law of One

question 75

Multiple Choice

Which of the following statements regarding the Law of One Price is INCORRECT?

• A)An important property of the Law of One Price is that it holds even in markets where arbitrage is not possible.
• B)At any point in time, the price of two equivalent goods trading in different competitive markets will be the same.
• C)One useful consequence of the Law of One Price is that when evaluating costs and benefits to compute a net present value (NPV), we can use any competitive price to determine a cash value, without checking the price in all possible markets.
• D)If equivalent goods or securities trade simultaneously in different competitive markets, then they will trade for the same price in both markets.

---

Definitions:

Monetary Item

Financial assets and liabilities that carry a fixed or determinable amount of money, such as cash, receivables, and payables.

Foreign Exchange Rates

The prices at which one currency can be exchanged for another, influencing international trade and finance.

Functional Currency

The currency of the primary economic environment in which an entity operates, usually the currency of the country where it primarily generates and expends cash.

Monetary Liabilities

Obligations of an entity to pay cash to another party in the future as a result of past transactions or events.