Explain how triangular arbitrage ensures that currency values are essentially the same in different markets around the world at any given moment.
Answer to relevant QuestionsExplain how the law of one price establishes a relationship between changes in currency values and inflation rates. One month ago, the Mexican peso (Ps)–U.S. dollar exchange rate was Ps9.0395/$ ($0.1106/Ps). This month, the exchange rate is Ps9.4805/$ ($0.1055/Ps). State which currency appreciated and which depreciated over the last ...If the expected rate of inflation in the United States is 1%, the one-year risk-free interest rate is 2%, and the one-year risk-free rate in Britain is 4%, what is the expected inflation rate in Britain? Is buying an option more or less risky than buying the underlying stock? Draw payoff diagrams for each of the following portfolios (X = strike price): a. Buy a call with X = $50, and sell a call with X = $60 b. Buy a bond with a face value of $10, short a put with X = $60, and buy a put with X = ...
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