Problem

26. Consider three exchange rate, dollar/euro, yen/euro and yen/dollar. Provided below are...

26. Consider three exchange rate, dollar/euro, yen/euro and yen/dollar. Provided below are their spot FX rates and one-year interest rates (assume a continuous-compounding convention):

(a) Check whether triangular arbitrage exists in the spot FX market.

(b) Check whether triangular arbitrage exists in the one-year forward FX market.

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