Understanding the Law of One Price: A Legal Perspective
Definition & Meaning
The Law of One Price is an economic principle stating that in an efficient market, identical goods should have the same price. This means that if a particular security can be replicated using a combination of other securities, the price of the original security and the combined price of the replicating securities must be equal. This concept is crucial for understanding how markets operate and ensures fair pricing across different trading platforms.
Legal Use & context
The Law of One Price is often referenced in financial and economic contexts, particularly in securities trading and investment law. It applies to various legal areas, including:
- Financial regulation
- Securities law
- Contract law
Understanding this principle can help individuals and businesses navigate the complexities of market transactions. Users can manage related forms and procedures through resources like US Legal Forms, which provide templates drafted by legal professionals.
Real-world examples
Here are a couple of examples of abatement:
Here are a couple of examples illustrating the Law of One Price:
- If a stock is trading at $50 on the New York Stock Exchange, it should also trade at $50 on the NASDAQ, assuming no transaction costs or delays (hypothetical example).
- A bond with a specific interest rate and maturity should have the same market price, regardless of whether it is purchased through a broker or directly from the issuer (hypothetical example).