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Question 4: Suppose the Canadian dollar is currently traded at C$ 1.40/$. The Deutsche mark is traded at DM 1.39/$. Ignoring transaction costs: a. Determine

Question 4: Suppose the Canadian dollar is currently traded at C$ 1.40/$. The Deutsche mark is traded at DM 1.39/$. Ignoring transaction costs:

a. Determine the C$/DM exchange rate consistent with these direct quotations.

b. Suppose the C$/DM cross rate in the market was at C$ 1.05/DM. Is there any arbitrage opportunity?

c. How would you take advantage of any arbitrage situation?

d. What is your profit?

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