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14 views1 page

Ch005 25

Uploaded by

story
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First calculate any implied cross rate to see if any arbitrage

exists.
What is the implied S(U/£) cross rate?

£1.50 = $1.00 ⇔ $1.00 = U120


£1.00 = U80 ⇔ S(U/£) = U80

Credit Agricole has posted a quote of S(U/£)=85 so there is


an arbitrage opportunity.
So how can we make money?
. Buy the £ @ U80; sell @ U85.
Then trade yen for your preferred currency.

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