A U.S. dollar costs 7.5 Norwegian kroner, but the same dollarcan be purchased for 1.25 Swiss francs.

1. What is the Norwegian krone/Swiss franc exchange rate(ENOK/SFr) supposed to be?

2. Suppose that the Norwegian krone/Swiss france exchange rateis ENOK/SFr=6.10, instead. Can you profit immediately by doing somecurrency transactions simultaneously on the three foreign exchangemarkets (US, Norway, Switzerland)? Suppose you have $100 on hand.Show how much you can profit from those currency transactions,which are known as “triangular arbitrage.”

3. Explain whether or not the triangular arbitrage opportunitycan persist on the foreign ex-change markets.

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To determine the Norwegian kroneSwiss franc exchange rate ENOKSFr we can use the concept of cross rates By comparing the exchange rates of each curren... View the full answer