1.Below are spot exchange rate quotes from three F/X dealers. Based on these F/X quotes, which of the following is a profitable triangular arbitrage trade?

Winken quotes the Japanese yen per USD exchange rate at 80 JPY per USD

Blinken quotes the euro at $1.20 per EUR

Nod quotes a cross rate of 98 JPY per EUR

___ Sell USD to Winken in exchange for JPY; then sell JPY and buy EUR from Nod; then sell EUR and buy USD from Blinken

___ Sell USD and buy EUR from Blinken; sell EUR and buy JPY from Nod; sell JPY and buy USD from WInken

___ There is no profitable triangular arbitrage trade.

A British NGO raised GBP 25,000 in order to provide emergency medical kits to supply the Red Crescent for its work in conflict-ravaged Syria. The kits are manufactured in Turkey and are priced at 100 Turkish lira per kit. The current TRY per GBP exchange rate is 2.80 bid, 2.82 ask. How many medical kits can be acquired with the GBP 25,000?

___ 250 kits ___ 700 kits ___ 705 kits

A US portfolio manager wants to liquidate shares she controls of Vale, a Brazilian firm that trades on the BOVESPA stock exchange at BRL 46.20 per share, in order to buy 50,000 shares of Freeport McMoran on the NYSE at $43.60 per share. The quoted bid/ask exchange rates are 1.705/1.710 BRL per USD. How many shares of Vale must she sell in order to finance her acquisition of 50,000 shares of Freeport McMoran?

___ 27,594 shares ___ 80,453 shares ___ 80,688 shares

Bid-ask spreads observed in spot exchange rates are likely to be relatively lower for currencies which experience which of the following:

___ higher volatility ___ higher trading volume ___ less competition among dealers

Which of the following exchange rates are likely to experience the largest bid-ask spreads?

___Spot exchange rates for developed country currencies.

___One-year forward exchange rates for developed country currencies.

___One-year forward exchange rates for emerging market currencies.

A currency dealer in Miami quotes the Colombian peso versus the USD at a bid price of 1745 COP per USD and an ask price of 1750 COP per USD. A currency dealer in Bogot quotes a bid price of 1734 COP per USD and an ask price of 1743 COP per USD. Which of the following statements is true?

___ There is not an exploitable violation of the law of one price.

___ Arbitrage profits can be made by selling USD in exchange for COP in Miami while buying USD with COP in Bogot.

___ Arbitrage profits can be made by selling USD in exchange for COP in Bogot while buying USD with COP in Miami.