(One price principle) On 27 October, an arbitrageur in London was following the exchange rates in Asheville....

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(One price principle) On 27 October, an arbitrageur in London was following the exchange rates in Asheville. At that time, $1 was traded for €0.8251 and £0.4111 (you can’t change directly pounds into Euros and vice versa in Asheville). At the same time in London, ₤1 was traded for €1.9608 and $2.4390.

a. Show a strategy that will enable the arbitrageur to make arbitrage profits.

b. Assume that the arbitrageur invests £100,000 in the strategy. How much money will he gain from implementing it?

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