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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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