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A U.S. dollar costs 7.5 Norwegian kroner, but the same dollar can be purchased for 1.25 Swiss francs. What is the Norwegian krone/Swiss franc exchange

A U.S. dollar costs 7.5 Norwegian kroner, but the same dollar can be purchased for 1.25 Swiss francs.

  1. What is the Norwegian krone/Swiss franc exchange rate (ENOK/SFr) supposed to be? (10 pts)
    1. answer 6
  2. Suppose that the Norwegian krone/Swiss france exchange rate is ENOK/SFr =6.10, instead. Can you profit immediately by doing some currency transactions simultaneously on the three foreign exchange markets (US, Norway, Switzerland)? Suppose you have $100 on hand. Show how much you can profit from those currency transactions, which are known as "triangular arbitrage." (15 pts)
  3. Explain whether or not the triangular arbitrage opportunity can persist on the foreign exchange markets. (5 pts)

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