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The following are quotes for several U.S. currency dealers. Dealer A B C D E Japanese yen 108.98 - 109.00 109.02 - 109.06 108.99 -...

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Finance

The following are quotes for several U.S. currency dealers.

Dealer

A

B

C

D

E

Japanese yen

108.98 - 109.00

109.02 - 109.06

108.99 - 109.02

109.01 - 109.05

108.97 - 109.01

British pounds

1.2374 - 1.2376

1.2376 - 1.2378

1.2378 - 1.2381

1.2376 - 1.2378

1.2373 - 1.2375

Inter-dealer arbitrage

1a. Is there an arbitrage opportunity in Japanese yen? If so,what exchanges should you make to take advantage of it? (Bespecific about which dealer you would select, what currency youwould buy from or sell to that dealer, and how much of the othercurrency you would pay or receive.

b. How profitable is a round trip trade? (State theprofitability either in percent or basis points.)

Answer & Explanation Solved by verified expert
4.3 Ratings (806 Votes)
Yes there is an arbitrage opportunity in Japanese YenArbitrage can be done in two waysSuppose you initiated an arbitrage trade with 10Dealing only in YenThis will be done in 2 stepsStep 1 Purchase 10 worth of Yen from Dealer B since the Askprice is the    See Answer
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Transcribed Image Text

The following are quotes for several U.S. currency dealers.DealerABCDEJapanese yen108.98 - 109.00109.02 - 109.06108.99 - 109.02109.01 - 109.05108.97 - 109.01British pounds1.2374 - 1.23761.2376 - 1.23781.2378 - 1.23811.2376 - 1.23781.2373 - 1.2375Inter-dealer arbitrage1a. Is there an arbitrage opportunity in Japanese yen? If so,what exchanges should you make to take advantage of it? (Bespecific about which dealer you would select, what currency youwould buy from or sell to that dealer, and how much of the othercurrency you would pay or receive.b. How profitable is a round trip trade? (State theprofitability either in percent or basis points.)

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