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see foreign exchangeforeign exchange,
methods and instruments used to adjust the payment of debts between two nations that employ different currency systems. A nation's balance of payments has an important effect on the exchange rate of its currency.
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(6) That is, for a general equilibrium to exist under standard economic analysis, it must not be possible for markets to be arbitraged. Because we do not observe significant levels of arbitrage, it is generally assumed that markets operate in a fashion that prevents arbitrage opportunities from arising.
One consequence of this theorem is that, if one can find a way to allocate probabilities in a manner which follows the standard rules described above, then a set of prices derived from a risk-neutral valuation based on these probabilities is not capable of being arbitraged and, conversely, if the market is not capable of being arbitraged, there is at least one set of probabilities (although there may be possibly infinitely many if the market is incomplete) that one could use that would give the observed prices via a risk-neutral valuation.
Clearly, adequate care must be taken to prevent unallowable arbitraged on government funds.