6. The law of one price: When an exchange rate is quoted by two dealers, each dealer must quote the same exchange rate or there will be an opportunity for so-called "locational arbitrage" between the two dealers. Buy a currency where it is relatively cheap, and sell it where it is relatively expensive. A currency dealer in Miami quotes the Brazilian real against the US dollar at USD/BRL 4.180. An exchange rate dealer in So Paulo quotes the Brazilian real against the US dollar at USD/BRI. 4.200. Which of the following represents a profitable locational arbitrage strategy? Hint: Consider a hypothetical transaction that begins with USD 1 million. A Trade USD for BRT. in Miami, then trade BRI. for USD in So Paulo for a positive profit. B Trade USD for BRT. in So Paulo, then trace BRL for USD in Miami for a positive profit. -The law of one price is not violated. 7. The graph below shows the onshore exchange rate for the Chinese yuan as traded in Shanghai (USD/CNY) and the offshore exchange rate for the Chinese yuan as traded in Hong Kong (USD/CNH) between March 2015 and September 2016. Note that the graph's vertical scale is inverted. Onshore (USD/CNY) and offshore (USD/CNH) exchange rates, inverted scale source: www.invesring.com/currencies 6.10 6.21) 6.30 6.40 6.50 6.60 USD/CNY ------USD/CNH 6.70 6,80 Marte Apr 15 MAY 1 91-1 Sep 16 91-any U1 91- UT UT Be prepared to discuss the following questions. 2. Did the onshore and offshore markets for the Chinese yuan appear to obey the law of one price throughout this entire period? If not, when did an apparent violation of the law of one price occur? 1). During that period, in which market woull a trader prefer to sell US dollars for Chinese yuan? A Shanghai B_Hong Kong c. During that period, in which market would a trader prefer to buy US dollars with Chinese yuan? A_Shanghai B- Hong Kong