Question
Suppose two banks provide the following quotes for the Japanese Yen (JPY) per 1 Euro exchange rate: Bid Ask A Bank JPY 128.6380/Euro JPY 128.6420/Euro
Suppose two banks provide the following quotes for the Japanese Yen (JPY) per 1 Euro exchange rate:
| Bid | Ask | |
| A Bank | JPY 128.6380/Euro | JPY 128.6420/Euro |
| B Bank | JPY 128.7420/Euro | JPY 128.7510/Euro |
Suppose an investor has Euro 1 million to apply to arbitrage. Can an investor make a profit through locational arbitrage? Show the work.
If a profit exists, how will the quotes change to eliminate this profit opportunity (be specific about which quotes are changing and how)?
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Financial Management Theory And Practice
Authors: Prasanna Chandra
11th Edition
9355322208, 978-9355322203
