Suppose the Japanese yen exchange rate is ¥116 = $1, and the British pound exchange rate is £1 = $1.27. a. What is the cross-rate in terms of yen per pound? b. Suppose the cross-rate is ¥156 = £1. Is there an arbitrage opportunity here? If there is, explain how to take advantage of the mispricing and the potential arbitrage profit. What is your arbitrage profit per dollar used?
