How do market forces help restore equilibrium in exchange rates when Purchasing Power Parity is disrupted?

• A. Exchange rates naturally stabilize without any market intervention.
• B. Consumer preferences alone drive exchange rate adjustments.
• C. Government interventions are the primary method for restoring exchange rate equilibrium.
• D. Arbitrage opportunities lead to increased demand for undervalued currencies, adjusting exchange rates back to equilibrium.

Answer: (D)