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Suppose the Japanese yen exchange rate is 118 = $1, and the British pound exchange rate is 1 = $1.36. a.What is the cross-rate in
Suppose the Japanese yen exchange rate is 118 = $1, and the British pound exchange rate is 1 = $1.36.
a.What is the cross-rate in terms of yen per pound?
b.Suppose the cross-rate is 157 = 1. Is there an arbitrage opportunity here? Ifthere is, explain how to take advantage of the mispricing and the potentialarbitrage profit. What is your arbitrage profit per dollar used?
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