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Risk managment : arbitrage profits in currency exchanges

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17-5. (Exchange rate arbitrage) You own $10,000. The dollar rate in Tokyo is 216.6743. The yen rate
in New York is given in the preceding table. Are arbitrage profits possible? Set up an arbitrage
scheme with your capital. What is the gain (loss) in dollars?

ST-1. You own $10,000. The U.S. dollar rate on the New Zealand dollar is 2.5823 NZ$/US$. The
New Zealand dollar rate is given in the accompanying table. Are arbitrage profits possible? Set up
an arbitrage scheme with your capital. What is the gain (loss) in dollars?

h. You own $10,000. The dollar rate in Tokyo is 216.6752. The yen rate in New York is given
in the preceding table. Are arbitrage profits possible? Set up an arbitrage scheme with your
capital. What is the gain (loss) in dollars?

i. Compute the Canadian dollar/yen spot rate from the data in the preceding table.

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The solution explains how to find out if any arbitrage opportunities are available in currency exchange

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Problem set 2
Risk management problems
17-5. (Exchange rate arbitrage)You own $10,000. The dollar rate in Tokyo is 216.6743. The yen rate
in New York is given in the preceding table. Are arbitrage profits possible? Set up an arbitrage
scheme with your capital. What is the gain (loss) in dollars?

The Tokyo rate is 216.6743 Yen/$
The (indirect) New York rate is 1/.004684 = 213.4927 Yen/$.
Assuming no transaction costs, the rate between Tokyo and New York are out of line. Arbitrage profits are possible.
Yen is cheaper ...

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