Question: Suppose that one euro can be exchanged for 1 3 U S
Suppose that one euro can be exchanged for 1.3 U.S. dollars and that one U.S. dollar can be exchanged for 80 Japanese yen. If these currencies can be traded freely with low transaction costs, what exchange rate would you expect between euros and the Japanese yen? Describe the transactions that would occur if the euro-yen exchange rate is higher than this amount (more yen per euro).
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