Question Details

	Username: Andrew Rating: Asked to: Goro Yang Date Created: 26 Oct 2017
Category	46
Tag	Financial
Question	What is the 'Law Of One Price'?

Advice from Guru

Hello Andrew,

The law of one price is the economic theory that the price of a given security, commodity or asset has the same price when exchange rates are taken into consideration. The law of one price is another way of stating the concept of purchasing power parity. The law of one price exists due to arbitrage opportunities.

If the price of a security, commodity or asset is different in two different markets, then an arbitrageur purchases the asset in the cheaper market and sells it where prices are higher. When the purchasing power parity doesn't hold, arbitrage profits will persist until the price converges across markets.

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