Currency Exchange Arbitrage
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7. Suppose the euro is quoted at 0.7064-80 in London and the pound sterling is quoted at 1.6244-59 in Frankfurt.
a. Is there a profitable arbitrage situation? Describe it.
b. Compute the percentage bid-ask spreads on the pound and euro.
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Solution Summary
A calculation to examine a potential arbitrage situation with the given exchange rates.
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a. Is there a profitable arbitrage situation? Describe it.
First, sell euros for £0.7080/? in London, and then use the pounds to buy euros for ...
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