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The dollar spot exchange rate of the Danish Kroner is DKr8.25/$, and the dollar spot exchange rate of the Swiss franc is SFr 1.65/$. 1.

The dollar spot exchange rate of the Danish Kroner is DKr8.25/$, and the dollar spot exchange rate of the Swiss franc is SFr 1.65/$.

1. What should be the Dkr/SFr cross-rate be so that there are no arbitrage opportunities (Ignore transaction costs)?

2. Suppose a bank is offering Dkr5.20/SFr. At this exchange rate, Which currency is overvalued with respect to the other?

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