Which of the following statements is the most accurate about the Law of One Price on Scandinavian ferry lines?
A) Due to menu costs, the Law of One Price does not hold.
B) To avoid arbitrage opportunities, the Law of One Price must hold.
C) Transaction costs of exchanging currency allows the Law of One Price to fail.
D) Transportation costs between ferry lines leads to a violation of the Law of One Price.
E) The physical distance allowed the Law of One Price to hold.

Question

Quizplus · Accepted Answer

Transaction costs, such as those involved in exchanging currency, can prevent the Law of One Price from holding because they create price differences that are not arbitrageable.

Which of the Following Statements Is the Most Accurate About