Due to ____, Market Forces Should Realign the Cross Exchange

question 87

Multiple Choice

Due to ____, market forces should realign the cross exchange rate between two foreign currencies based on the spot exchange rates of the two currencies against the U.S. dollar.​

• A) ​forward realignment arbitrage
• B) ​triangular arbitrage
• C) ​covered interest arbitrage
• D) ​locational arbitrage

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Definitions:

Effective Price Ceiling

An effective price ceiling is a government-imposed limit on the price that can be charged for a product or service, set below the market equilibrium, leading to shortages.

Equilibrium Price

The price point at which the market's supplied and demanded goods quantities meet.

Surpluses

Occurs when the quantity of a good or service supplied exceeds the quantity demanded at a specific price; the opposite of shortages.

Shortages

A situation in which the demand for a product or service exceeds the supply available at a particular price.