Options from the Text 1) Toronto, frankfurt 2) Toronto, Frankfurt 3) Toronto, Fr

Question

Options from the Text

1) Toronto, frankfurt

2) Toronto, Frankfurt

3) Toronto, Frankfurt

4) Toronto, Frankfurt

5) Toronto, Frankfurt

6) Toronto, Frankfurt

7) Rise, fall

8) Rise, fall

4. Arbitrage and spot exchange rates Aa Aa Suppose you trade dollars and euros for a bank that has branches in Toronto and Frankfurt. You can electronically transfer the funds between the two branch locations at no cost, and trading commissions are negligible. Assume that the current dollar-per-euro exchange rate in Toronto is Es/EUR NY 1.5695, while in Frankfurt, it is Es/EURFR 1.5879. You can make a profit for the bank if you buy euros in and sell them in Other foreign exchange traders will buy euros in buy dollars in Frankfurt (Es/EURFR) will and sell them in They will also and sell them in As a result, the dollar-per-euro exchange rate in , and the dollar-per-euro exchange rate in Toronto (Es/EUR WY) will

Explanation / Answer

Frankfurt(for this see exchange rate as 1/E$/€) Toronto Frankfurt Toronto Toronto Frankfurt fall (High demand for euro in Frankfurt therefore its price will rise and the exchange rate will depreciate or fall) rise

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