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AaBbCcDdEe AaBbCcDdEe AaBbCcDc AaBbCcDdEt A A AO EEVEE E År DAE Normal No Spacing Heading 1 Heading 2 Sates, fixes, and improvements, choose Check for Updates. You are given the following exchange rates: $/€ = $1.15/€ P/$ = P12/$ $/£= $1.5/£ ¥/$ = X108/$ Determine the cross-exchange rates between: Yen and pound = Euro and pound = Peso and pound Yen and euro = Peso and dollar = Now suppose the exchange rate between the euro and the dollar in New York is $/C = $1.15/€; the exchange rate between the dollar and the yen is /$ = ¥108/$; the exchange rate between the yen and the euro is 126.50. Do you see an arbitrage opportunity here? Briefly explain. If there is and your home currency is the US dollar how much profit can you make if you engage $1,000,000 in an arbitrage transaction?

Answer 1

1.

Yen and pound

Given: 1 pound = 1.5$

Also, 1$ = 108 yen

This means,

1 pound = 1.5(108)Yen

1 pound = 162 Yen

Thus, exchange rate between yen and pound: Y/pound = Y 162/pound

2.

Euro and pound

Given: 1 pound = 1.5$

Also, 1Euro = 1.15$

Or, 1$ = (1/1.15)Euro

This means,

1 pound = 1.5(1/1.15)Euro

1 pound = 1.304 Euro

Thus, exchange rate between Euro and pound: Euro/pound = Euro 1.304/pound

3.

Peso and pound

Given: 1 pound = 1.5$

Also, 1 $ = 12 Peso

This means,

1 pound = 1.5(12) Peso

1 pound = 18 Peso

Thus, exchange rate between Peso and pound: Peso/pound = Peso 18/pound

4.

Yen and Euro

Given, 1$ = 108 Yen

Also, 1 Euro = 1.15$

This means,

1 Euro = 1.15(108) Yen

1 Euro = 124.2 Yen

Thus, exchange rate between Yen and Euro: Yen/Euro = Yen 124.2/Euro

5.

Peso and dollar

Given: 1$ = 12Peso

Thus, exchange rate between peso and dollar; P/$ = 12P/$

Note: First question with 5 subparts is answered

Kindly ask rest of the questions in a separate post