Concept
Concept
Price stickiness refers to the resistance of prices to change despite shifts in supply and demand, often due to factors like menu costs, contracts, and customer expectations. This phenomenon can lead to market inefficiencies and is a central concept in understanding short-run economic fluctuations and monetary policy effectiveness.
Concept
Mispricing occurs when the market price of an asset deviates from its intrinsic value, often due to inefficiencies, information asymmetry, or behavioral biases. This discrepancy can present opportunities for arbitrage, but also poses risks if the mispricing persists or corrects unexpectedly.
Concept
Covered Interest Arbitrage is a strategy in which investors capitalize on the interest rate differential between two countries while using forward contracts to hedge against exchange rate risk. This ensures that the return on investment is not affected by fluctuations in currency values, allowing for a risk-free profit opportunity if market inefficiencies exist.
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