Daily forex rates fixing by the Central Bank of South Korea (advanced). The Central Bank of South Korea announces every business day at 9:00 a.m. a fixed rate at which it will buy or sell U.S. dollars for won (KRW) throughout the trading day. No such commitments are made, however, against other major trading currencies.

On August 9, 1990, the following rates were set at 9:00 a.m.: US$1 = KRW 715. Quotes for the cross-rate US$/¥ indicated 150. Thirty minutes later, the Japanese yen had appreciated to ¥148 for US$1.

a. Explain how the treasurer of Samsung, one of the leading South Korean industrial conglomerates, could profit from the new situation at 9:30 a.m.

b. As the central banker of South Korea, explain how you could prevent such arbitrage profits—short of imposing controls on foreign exchange dealings.

c. Assuming that the central bank buying and selling rates are respectively 714 and 716 and that bid-ask rates on US$ versus ¥ are 148. 20 and 147. 80, what would be your answer to question 5a?