Cross-Rates and Arbitrage. Suppose the Japanese yen exchange rate is ¥106 = $1, and the British pound exchange rate is £1 = $1.51.
a. What is the cross-rate in terms of yen per pound?
b. Suppose the cross-rate is ¥165 = £1. Is there an arbitrage opportunity here? If there is, explain how to take advantage of the mispricing.
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