1. John is interested in inter-bank arbitrage. Suppose that the following exchange rates are available to him and that he may either buy or sell at these rates. Citibank, New York Barclays Bank, London US dollars per euro US dollars per pound sterling 0.77495/ 0.67782/ Deutsche Bank, Frankfurt Euros per pound sterling 0.89283/ 2. (a) Does an opportunity exist to profit from arbitrage between the three markets? In other words, is triangular arbitrage possible? Explain your answer. (b) If John has US$1 million to arbitrage with, what would be the result (profit or loss) from triangular arbitrage? Illustrate and explain your answer, and show all workings. (15 marks) Suppose that due to extreme political and economic pressures (in early 2001), the Turkish government found it necessary to devalue the Turkish lira (TL) by 25%. Suppose also, that the day before the official devaluation was announced the spot exchange rate was TL71000/USD. (a) What was the exchange rate after the 25% devaluation? (b) Within three days the lira had moved to TL105000/USD. What percentage change was this from the pre-devaluation rate? (10 marks)