Suppose the Japanese yen exchange rate is 116 = $1, and the British pound exchange rate is
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Suppose the Japanese yen exchange rate is ¥116 = $1, and the British pound exchange rate is £1 = $1.27.
a. What is the cross-rate in terms of yen per pound?
b. Suppose the cross-rate is ¥156 = £1. Is there an arbitrage opportunity here? If there is, explain how to take advantage of the mispricing and the potential arbitrage profit. What is your arbitrage profit per dollar used?
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a The cross rate in terms of yen per pound is 116 1 156 b Yes there i...View the full answer
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