Suppose the Japanese yen exchange rate is ¥69.47 = $1, and the British pound exc

Question

Suppose the Japanese yen exchange rate is ¥69.47 = $1, and the British pound exchange rate is £1 = $1.49

Suppose the Japanese yen exchange rate is ¥6947 = $1, and the British pound exchange rate is £1: $1.49. (Enter your answer as directed, but do not round intermediate calculations.) Required (a) What is the cross-rate in terms of yen per pound? (Do not include the yen sign (). Round your answer to 2 decimal places (e.g., 32.16).) Cross-rate 103.51 (b) Suppose the cross-rate is ¥105 1. What is the arbitrage profit per dollar? (Round your answer to 4 decimal places (e.g., 32.1616).) Arbitrage profit per dollar

Explanation / Answer

Part 1 Doller = Yen 1 = 69.47 Pound = Doller 1 = 1.49 Pound = Yen 1 = 1.49 Doller * 69.47 yen 103.51 yen per pound Part 2 1 pound = 105 yen 1 pound = 1.49 doller 1 doller = 69.47 yen 1 pound = 69.47yen * 1.49 doller = 103.51 yen diffrence in yen current price of pound = 105 yen - 103.51 yen = 1.49 yen Increament in doller = 1.49 yen / 69.47 yen = 0.0214 Arbitrage profit per doller = 0.0214/1.49doller = $0.0144

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