Consider the following exchange rate quotations provided by three different banks:

Bank of America: $1.40/

Deutsche Bank: $1.75/

Credit Agricole: 0.83/

a. Calculate cross rate S(/) based on quotes by Bank of America and Deutsche Bank.

b. Suppose you have 1,000,000 capital. Show how you can make arbitrage profit from the above exchange rate quotations. How much profit in would you make?

c. Explain how the market forces work to bring the rates back into equilibrium when arbitrageurs make the above profits? Explain it with all the transactions you make in your arbitrage strategy.