EC249 Lecture 10: Lecture 10 EC249
Document Summary
Cannot be different because what you are investing are the same assets, same characteristics, only difference is location. Financial market liberalization would not be possible unrelated. It would be possible for a clever trader to make unlimited amounts of money by exploiting the arbitrage opportunity. Where points off the line cause international capital flows. In some countries, people cannot easily move their capital. If you are a uk investor and you invest in canada and you repatriate your funds, taxes differ. Goods should be the exact same prices between countries and currencies, if not, arbitrage opportunities push the prices back to equalization. Doesn"t seem to hold in the real world, relative purchasing power parity holds. Pair of jeans in uk, same pair in canada. Prices in uk lower than in canada due to exchange rates. Buy in uk, sell in canada, upward pressure on uk prices. Should equal to the ratio of the countries" price levels.
