Question: As you scan your bloomberg computer monitr here in NY you notice the following foreign exchange quotes between the US dollar and the EUro: Direct

As you scan your bloomberg computer monitr here in NY you notice the following foreign exchange quotes between the US dollar and the EUro:

Direct Reciprocal

Bank 1 1.0567 0.9463

Bank 2 1.0567 0.9463

Bank 3 1.0582 0.9450

Bank 4 1.0567 0.9463

You also see that all four banks are quoting a rate of USD1.2481 per British Pound Sterling.

a. Why is Bank 3 quoting a rate different from the other banks?

b. Show how you could perform geographic arbitrage in this situation. What is the profit per dollar from your arbitrage?

c. What is the equilibrium cross rate between the euro and the pound?

Please show all the calculator functions. thank you

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