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Cross-Rates and Arbitrage [L01] Suppose the Japanese yen exchange rate is 114 = $1, and the British pound exchange rate is 1 = $1.26. a.
Cross-Rates and Arbitrage [L01] Suppose the Japanese yen exchange rate is 114 = $1, and the British pound exchange rate is 1 = $1.26. a. What is the cross-rate in terms of yen per pound? b. Suppose the cross-rate is 147 = 1. Is there an arbitrage opportunity here? If there is, explain how to take advantage of the mispricing and the potential arbitrage profit. What is your arbitrage profit per dollar used?
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