Question: Refer to the data in the table below. Suppose they are the FX rates quoted by two large banks. By Bank A By Bank B

Refer to the data in the table below. Suppose they are the FX rates quoted by two large banks. By Bank A By Bank B Pair Bid Ask Pair + Bid Ask EUR/USD 0.9961 0.9962 EUR/USD 0.9963 0.9967 USD/JPY 143.94 143.96 USD/JPY 143.95 143.96 GBP/USD 1.1371 1.1378 GBP/USD 1.1377 1.1381 USD/TRY 18.3022 18.3122 USD/TRY 18.3004 18.3137 USD/CHF 0.9650 0.9654 USD/CHF 0.9649 0.9655 USD/CAD 1.3373 1.3377 USD/CAD 1.3367 1.3371 EUR/JPY 143.38 143.41 EUR/JPY 143.42 143.48 AUD/USD 0.6675 0.6677 AUD/USD 0.6678 0.6679 NZD/USD 0.5890 0.5894 NZD/USD 0.5893 0.5897 Assume the client will choose the best rate (buy at the lower rate and sell at the higher rate) to deal with either Bank A or Bank B. Fill in the blanks below: Client wants to Client deals at Client deals at what rate which bank . Buy 1 Mio GBP versus USD 1.1378 A (GBP / USD) a. Sell 5 Mio EUR versus USD (EUR / USD) b. Buy 0.6 Mio USD versus CAD (USD / CAD) C. Buy 10 Mio JPY versus USD (USD / JPY) d. Buy 0.5 Mio NZD versus USD (NZD / USD)Assume now you are a market maker of Bank C. Make a reasonable two-way price quote (i.e. both bid and ask with 10 pips spread) to attract the client to deal with your bank rather than the other two banks in the cases below (don't quote too high or too low, otherwise you will be taken arbitrage opportunity). d. (2 marks) of deal no. 0 above e. (2 marks) of deal no. (1 above f. (2 marks) If you are an arbitrageur, explain how you can take an arbitrage prot (and how much prot) from the quotes of Bank A and bank B in USD/CAD

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