Law of One Price is a crucial part of Arbitrage. Essentially, Law of one price creates an arbitrage if this law is violated. In order for us fully understand what is law of one price, we have to know what Arbitrage is. Arbitrage term is mainly applied to investment trading. Practice where profits can be made due to the price difference between two or more investing institutes or markets called arbitrage.

When looking at doing business internationally the company must take into consideration the idea of exchange rates and the affect those will have on the business. The Law of One Price is a theory that comes into play when looking at international business trade. The Law of One Price says that the given price of an asset, commodity, or security will be the same with or without the exchange rates taken into consideration.

Arbitrage is basically ensuring profit in a riskless fashion, thus generating abnormal returns. There are numerous ways to conduct arbitrage and with many financial instruments.