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The following spot exchange rates are currently being quoted by three different banks: Credit Suisse offers a spot rate of 0.00717-23/ Morgan Stanley offers a
The following spot exchange rates are currently being quoted by three different banks: Credit Suisse offers a spot rate of 0.00717-23/ Morgan Stanley offers a spot rate of 0.769-78/$ Deutsche Bank offers a spot rate of $99.9-100.5/$ Required: (1) Calculate the implied cross exchange rate between the euro () and the yen (). (10%) (ii) Demonstrate how an arbitrageur could make a profit from this situation and calculate the amount of the profit if 1m (millions) dollars ($) was arbitraged, showing all your workings. (20%) Now assume that you have 100m instead of $1m. Calculate the profit that can be made through triangular arbitrage, showing all your workings. (20%) The following spot exchange rates are currently being quoted by three different banks: Credit Suisse offers a spot rate of 0.00717-23/ Morgan Stanley offers a spot rate of 0.769-78/$ Deutsche Bank offers a spot rate of $99.9-100.5/$ Required: (1) Calculate the implied cross exchange rate between the euro () and the yen (). (10%) (ii) Demonstrate how an arbitrageur could make a profit from this situation and calculate the amount of the profit if 1m (millions) dollars ($) was arbitraged, showing all your workings. (20%) Now assume that you have 100m instead of $1m. Calculate the profit that can be made through triangular arbitrage, showing all your workings. (20%)
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