2.99 See Answer

Question: Suppose the Japanese yen exchange rate is ¥


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?


2.99

See Answer