Suppose the Japanese yen exchange rate is 112 = $1, and the British pound exchange rate is

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Suppose the Japanese yen exchange rate is ¥112 = $1, and the British pound exchange rate is £1 = $1.93.

a. What is the cross-rate in terms of yen per pound?

b. Suppose the cross-rate is ¥209 = £1. Is there an arbitrage opportunity here? If there is, explain how to take advantage of the mispricing.

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
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Fundamentals of corporate finance

ISBN: 978-0073382395

9th edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan

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