Question
Assume you observe the following quotes given by a Bank Dealer: Bid Ask Spot ($/British Pound 1.9712 1.9717 Spto ($/Euro): 1.4738 1.4742 What are the
Assume you observe the following quotes given by a Bank Dealer:
Bid Ask
Spot ($/British Pound 1.9712 1.9717
Spto ($/Euro): 1.4738 1.4742
What are the No-arbitrage Bid and Ask prices the currency dealer should be quoting for Spot(Euro/British Pound). In other words, in the case of the No-arbitrage (equilibrium) Bid(Euro/British Pound), find the price that the currency dealler will pay in Euros to buy British Pounds back from the customer, and in the case of the No-arbitrage (equilibrium) Ask(Euro/British Pound), find the price that a currency dealer will take in Euros to sell British Pounds to the customer.
a. | Bid=1.3210, Ask=1.3219 (/) | |
b. | Bid=1.3378, Ask=1.3371 (/) | |
c. | Bid =1.3371, Ask=1.3378 (/) | |
d. | Bid= 1.3219, Ask=1.3299 (/) |
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