Black Market Perfect Markets Bankers acceptance and irrevocable letters of credit Arbitrage Spot Market Political Risk Foreign Exchange Market Near-perfect Markets Foreign Exchange rate Law of one price Nationalization A. Exchange takes place immediately. B. Rate once currency can be traded for another C. Opportunity to make a profit with very little risk D. Payment of bill is guaranteed by bank and can work for either selling or purchasing goods E. Private property is seized by the government for good of the people F. Consists of illicit buying and selling of goods and services in violation of legal controls G. In perfect market law of competition will drive equal assets to equal price H. Risk that actions by a foreign government will have negative impact on firm s wealth I. Law of competition will drive equal assets to equal price J. Law of one price will hold equal assets approximately equal K. Currencies of one country exchanged for currencies of another country