Question

Question 32 1 pts The table below presents quotes and cross-quotes on GBP and EUR Price for GBP in Price for EUR in New Price for EUR In Chicago (USD/GBP) York USOURI London (GBP/EURI 1 GBPUSD 1.45 1 EUR USD 1.15 1 EUR GBP 0.7852 If all traders use triangular arbitrage to maximize pronts, then USD/GBP for the Chicago dealer will GBP/EUR for the London dealer will and USD/EUR for the New York dealer will Increase decrease: decrease increase increase, decrease decrease: decrease increase decrease: Increase; Increase

Answer 1

Arbitrage process is buy GBP then sell GBP to euro and sell euro to usd

1gbp cost 1.45

When converted to euro we get 1/0.7852 = 1.2735 euro

When converted to dollar we get 1.2735×1.15 =1.4645

So there is arbitrage profit

So usd/GBP at Chicago dealer will increase(buying pressure)

And GBP/euro at london will decrease(selling pressure)

And usd/euro at will decrease(selling pressure)

So option 1 is correct