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True/False.  For any three currencies that are freely convertible in competitive markets, it is enough to know...

  1. True/False.  For any three currencies that are freely convertible in competitive markets, it is enough to know the exchange rates between any two pairs of them in order to know the third.
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Answer #1

True

This is possible due to the concept of law of one price. It states that price of an identical asset will have the same the same price globally, when certain factors are considered. It exists because different prices in different locations would eventually eliminated due to arbitrage opportunity. So, arbitrage ensures that for any three currencies that are freely convertible in competitive markets, it is enough to know the exchange rates between any two pairs of them in order to know the third.

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