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LO1 5. Cross-Rates and Arbitrage Suppose the Japanese yen exchange rate is 116=$1 and the British pound exchange rate is 1=$1.27. a. What is the

LO1 5. Cross-Rates and Arbitrage Suppose the Japanese yen exchange rate is 116=$1 and the British pound exchange rate is 1=$1.27.

a. What is the cross-rate in terms of yen per pound?

b. Suppose the cross-rate is 156=1. Is there an arbitrage opportunity here? If there is, explain how to take advantage of the mispricing.

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