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You have learned triangular arbitrage this week. Suppose there are three foreign exchange markets: Market 1: X1=$0.01 Market 2: MYR 1 = $0.2 Market 3:
You have learned triangular arbitrage this week. Suppose there are three foreign exchange markets: Market 1: X1=$0.01 Market 2: MYR 1 = $0.2 Market 3: MYR 1= V25 Note: is the Japanese Yen. MYR is the Malaysian Ringgit. $ is the U.S. dollar. a. Suppose you hold Japanese Yen, Malaysian Ringgit, and dollars. Is it possible for you to do arbitrage in the above three markets? If yes, how would you engage in arbitrage to profit from these three rates? What is your profit? (Show your calculations and explain your answers.) b. Is there any pressure on the cross-rate between the Yen and the MYR? What must the value of the cross-rate between the Yen and the MYR be to eliminate the opportunity for triangular arbitrage? Explain. Your score is based on your explanations. Explain as clearly as you can
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