Arbitration

|Al Hosn University |

|Does Arbitration Destabilize Foreign Exchange Markets? |

|Student Names: |

|ASMA ALARABEED, ID: 201210053 |

|NOURHANE NIZAR KADDOURA, ID: 201310052 |

|Rana IMAD OSMAN, ID: 201310019 |

|RANA . EL BADAOUI, ID: 201210411 |

|user pc |

|4/10/2016 |

Does Arbitration Destabilize Foreign Exchange Markets?

‘No’ because arbitration stabilizes the foreign exchange markets. In theory, the markets are efficient as the prices reflect the fundamental values, and arbitration forms the pillar of financial economics. It has become a norm in the financial market to avoid offering risk-free arbitrage opportunities, especially where allowance is available in form of transaction costs. The principle relates to the one price law, which states that inefficient and well-functioning financial markets, the identical securities should bear a similar price despite the method of creation. Arbitrage is the law that validates the one price law as explained by Lyons (2001). In the contexts of financial markets, there has never been any arbitration that is valid and mild. In most cases, the capital markets have violated the one...