Question
At a certain point in time, you observe the following quotes: -S(NOK/EUR) = NOK 10/EUR -S(USD/EUR) = USD 1.25/EUR -S(NOK/USD) = NOK 7.5/USD a)Is there
At a certain point in time, you observe the following quotes:
-S(NOK/EUR) = NOK 10/EUR
-S(USD/EUR) = USD 1.25/EUR
-S(NOK/USD) = NOK 7.5/USD
a)Is there an arbitrage opportunity based on these quotes? If so, set up a strategy that allows you to gain from the pricing mistake. Suppose you start your strategy with 1 EUR.Show computations.
b)What NOK/USD spot rate would eliminate the triangular arbitrage?
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International Financial Management
Authors: Cheol Eun, Bruce G. Resnick
8th edition
125971778X, 978-1259717789
