2 Besides the bid and ask quotes for the Thai baht provided in the previous question, Minzu Bank has provided the following quotations for the pound and the Japanese yen:

Quoted Bid Price Quoted Ask Price Value of a Japanese yen in British pounds

£0.0057 £0.0058 Value of a Thai baht in Japanese yen

¥2.69 ¥2.70 Determine whether the cross exchange rate between the Thai baht and Japanese yen is appropriate.

If it is not appropriate, determine the profit you could generate for Blades by withdrawing

£100 000 from Blades’ current account and engaging in triangular arbitrage before the rates are adjusted.

Recall that Blades, a UK manufacturer of roller blades, has chosen Thailand as its primary export target for

‘Speedos’, Blades’ primary product. Moreover, Blades’ primary customer in Thailand, Entertainment Products, has committed itself to purchase 180 000 Speedos annually for the next three years at a fixed price denominated in baht, Thailand’s currency.

Because of quality and cost considerations, Blades also imports some of the rubber and plastic components needed to manufacture Speedos.