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Marinela Barbulescu () and Alina Hagiu
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Marinela Barbulescu: Faculty of Economics and Law, University of Pitesti, Romania

Scientific Bulletin - Economic Sciences, 2020, vol. 19, issue 1, 30-37

Abstract: In our days, if we look at the financial system of a country as a whole, we can see that is acting as an umbrella for the financial markets (e.g. stock exchanges, money markets), the financial institutions (e.g. banks, non-bank institutions, building societies, insurance companies) and nevertheless for the financial securities (e.g. mortgages, bonds, bills and equity shares). This paper is focusing on the key effect of inflation on companies is the role it plays in determining exchange rates. The main function of an exchange rate is to provide a means of translating prices expressed in one currency into another currency. The implication is that the exchange rate will be determined in some way by the relationship between these prices. This arises from the law of one price that will be detailed below. The law of one price states that in a free market with no barriers to trade and no transport or transactions costs, the competitive process will ensure that there will only be one price for any given good. If price differences happen, they would be removed by arbitrage; in these cases entrepreneurs would buy financial products in the low market and then resell them in the high market, as expected. This would eradicate the price difference. In order to have a healthy and secured financial environment system, it is vital that all the objectives should include also the social and economic wealth of stakeholders involved.

Keywords: Financial analyse; Money markets; Interest; Derivates; Hedging. (search for similar items in EconPapers)
JEL-codes: G20 G21 (search for similar items in EconPapers)
Date: 2020
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Handle: RePEc:pts:journl:y:2020:i:1:p:30-37