Question: 1. An option that can be exercised at any time up to maturity is called a(n) A. swap B. stock option C. European option D.

1. An option that can be exercised at any time up to maturity is called a(n) A. swap B. stock option C. European option D. American option (5 marks) 2. John specializes in cross-rate arbitrage. He notices the following quotes: Swiss franc/dollar =$SF1.5971/S Australian dollar / U.S. dollar = AS1.8215/\$ Australian dollar/Swiss franc =A$1,1300/SE Ignoring transaction costs, does John have an arbitrage opportunity based on these quotes? if there is an arbitrage opportunity, what steps would he take to make an arbitrage profit, and how would he profit if he has $1,000,000 avaliable for this purpose. (15 marks)

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