QUESTION 6 Based on the information provided in the previous question, which of

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QUESTION 6 Based on the information provided in the previous question, which of the following will occur to eliminate the arbitrage opportunity? ?The euro will appreciate against the dollar. O The pound will depreciate against the dollar. O The pound will depreciate against the euro. O None of the above QUESTION 7 A money manager with $1,000,000 to invest notices that the dollar yen exchange rate is quoted as ¥125S and the dollarlfranc exchange rate is quoted at CHF.80/$. If a bank quotes you a cross rate of V156.25/CHF how much money can you make via triangular arbitrage (in terms of dollars)? Round intermediate steps to four decimals and your final answer to two decimals. Do not use currency symbols or words when entering your response. QUESTION 8 I currency prices adjust to eliminate the arbitrage opportunity in the previous question? How wil O The yen will appreciate against the dollar. O The franc will depreciate against the dollar. The franc will appreciate against the yen. No adjustment is necessary since arbifrage was not possible QUESTION 9 Click Save and Submit to save and subimit, Click Save All Ansuvers to save all answers Save All Answ F4 F6 F2 F8

Explanation / Answer

7)

Given:Investment = $1,000,000

Dollar/yen exchane rate = JPY 125/$

This means that 1 dollar is equal to 125JPY

Dollar/Franc exchange rate = CHF 0.80/$

this means 1 dollar equals to 0.80 CHF

Bank quote for yen to france = JPY 156.25/ CHF

it means 1 CHF = 156.25 JPY

Now we convert our dollars to JPY

1000000*125 = 125,000,000JPY

Now we convert these JPY to CHF with the bank

125,000,000 JPY/(156.25JPY/CHF) = 800000 CHF

Now we will convert these CHF back to USD

800000CHF/(0.8 CHF/$) = 1,000,000 $

Thus from the calculations, we see that our gain is $0. Thus the amount we made in the triangular arbitrage is 0.

8)

So from the above calculations, the answer is (d) No adjustment is necessary, as arbitrage is not possible.

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