Chapter 4. International Arbitrage
... [O]thers who favour exerting more control over currency trading are making the dangerous assumption that governments know better than markets what the “correct” exchange rate is. In fact there are good reasons to expect governments to make even bigger mistakes. Moreover, financial markets find it a lot easier than governments to admit their mistakes, and to reverse out of them. That is because one of the un-sung beauties of markets is that, unlike governments, they have no pride.
—The Economist1
The Law of One Price should hold no matter where an asset is traded in the world. Of course, the price of the same good trading in different places should reflect the transportation costs of moving it around the ...
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