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The fact that we can derive the British pound/Polish zloty exchange rate, say, from the dollar/pound rate and the dollar/zloty rate follows from ruling out
The fact that we can derive the British pound/Polish zloty exchange rate, say, from the dollar/pound rate and the dollar/zloty rate follows from ruling out a potentially profitable arbitrage strategy known as . As an example, suppose that the British pound price of a zloty was below the British pound price of a dollar times the dollar price of a zloty, as depicted by the hypothetical data in the following table. Using $100 to purchase the Polish currency directly would obtain 20 zlotys. (Round your answer to one decimal place.) Instead of buying zlotys directly, an arbitrager may first buy British pounds and then use these funds to purchase zlotys. In this case, an outlay of $100 will obtain 40 zlotys. (Round your answer to one decimal place.) These newly obtained zlotys may then be used to purchase $, yielding the arbitrager a profit of $ (Round your answers to one decimal place.)
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