Assume that a bank has the following quotes: 1 U.S. dollar = 110 Japanese yen, 1...
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Assume that a bank has the following quotes: 1 U.S. dollar = 110 Japanese yen, 1 Argentine peso = 0.37 U.S. dollar, 1 Argentine peso = 40 Japanese yen. a) To a U.S. investor, is the triangular arbitrage possible? If so, explain the steps and compute the profit from this strategy if the investor had $1,000,000 to use. b) Explain how investors' arbitrage activity affect each of the exchange rate until triangular arbitrage is no longer possible. Assume that a bank has the following quotes: 1 U.S. dollar = 110 Japanese yen, 1 Argentine peso = 0.37 U.S. dollar, 1 Argentine peso = 40 Japanese yen. a) To a U.S. investor, is the triangular arbitrage possible? If so, explain the steps and compute the profit from this strategy if the investor had $1,000,000 to use. b) Explain how investors' arbitrage activity affect each of the exchange rate until triangular arbitrage is no longer possible.
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