Question

Suppose:

₤1 buys €1.50 in NY, Tokyo, and London

$1 buys ¥100 in NY, Tokyo, and London

₤1 buys ¥150 in NY, Tokyo, and London

Is there an opportunity for two-point arbitrage?

A) No, because the direct rates are the same in all markets
B) Yes, because the direct rates are the same in all markets
C) Yes, because the direct rates differ in all markets
D) No, because the direct rates differ in all markets

Answer 1

C) Yes, because the direct rates differ in all markets

Step-by-step explanation:

₤1 buys €1.50 in NY, Tokyo, and London -> ₤1 = €1.50

₤1 buys ¥150 in NY, Tokyo, and London -> ₤1 = ¥150

⇔ €1.50 = ¥150

⇔ ¥100 = €1.50/1,5 = €1

$1 buys ¥100 in NY, Tokyo, and London - > $1 = ¥100

Tt clearly that €1 is different with $1.0 (as Reuter quoted today, $1.00 = €0.9030), so there’re opportunity for two-point arbitrage .