Cross-Rates and Arbitrage Suppose the Japanese yen exchange rate is 115 = $1, and the British pound
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Cross-Rates and Arbitrage Suppose the Japanese yen exchange rate is ¥115 = $1, and the British pound exchange rate is £1 $1.70.
a. What is the cross-rate in terms of yen per pound?
b. Suppose the cross-rate is ¥185 = £1. Is there an arbitrage opportunity here? If there is, explain how to take advantage of the mispricing. LO.1
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