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Suppose that on a given day, one Euro can buy 1.053 U.S. dollars, while each dollar can buy 105.124 Japanese yen. Based on this, how
Suppose that on a given day, one Euro can buy 1.053 U.S. dollars, while each dollar can buy 105.124 Japanese yen. Based on this, how may Yen should a Euro be able to buy in a normal competitive market. Now, imagine that the Euro-Yen exchange rate that day was 115 Yen per Euro. Describe an arbitrage strategy that would allow you to profit from this situation. Explain exactly the trades you would make and how this would allow you to profit with zero cash outlay and no risk.
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