A dealer in Australia quotes A$1.7430-40/$,
A dealer in Paris quotes $0.8610-20/euro.
A dealer in Germany quotes euro 0.6667-76/A$.
What should the German dealer quote to prevent any arbitrage?© BrainMass Inc. brainmass.com December 24, 2021, 4:49 pm ad1c9bdddf
SOLUTION This solution is FREE courtesy of BrainMass!
Assuming you are asking what the German dealer should quote Euros per USD.
The formula below is how you find the cross rates between currencies.
E/US (Euros per USD) = E/A (Euros per A$) X A/US (A$ per USD)
= .6671 X 1.7435 (we will take the mid-points)
= 1.16 euros per dollar is the answer. You can check your answer by taking the inverse of the US/E rate the French offer (1/.8615 = 1.16)
In this way, no one can buy US from one and sell to another for a profit, eliminating arbitrage profits.
Hope this helps.© BrainMass Inc. brainmass.com December 24, 2021, 4:49 pm ad1c9bdddf>