QUESTION 1

1. Use the following information to answer the next twoquestions.

   The peso/pound exchange rate is Mex$16/£ while the euro/poundexchange rate is €1.15/£ . You also observe that the actualpeso/euro cross exchange rate is Mex$12/€ . Find the triangulararbitrage profit (in pounds) available to someone that has accessto £3,000,000. Round intermediate steps to four decimals and yourfinal answer to two decimals. Do not use the pound sign whenentering your answer.

6.25 points   

QUESTION 2

1. Which of the following would occur to eliminate the arbitrageopportunity?

   		No changes are necessary.
   		The pound will appreciate against the euro.
   		The pound will appreciate against the peso.
   		None of the above

6.25 points   

QUESTION 3

1. Suppose a banker observed the following spot quotations fordollars and euros.

   Bank A: $1.0956-.62

   Bank B: $1.0958-.63

   Find the abritrage profit available (in terms of dollars) to abanker with 2 million dollars at her disposal. Round intermediatesteps to four decimals and your final answer to two decimals.

   		730.06
   		1277.84
   		182.45
   		365.10
   		0

6.25 points   

QUESTION 4

1. Locational arbitrage is possible when:

   		The bid price for a given currency in two locations isdifferent.
   		The ask price for a given currency in two locations isdifferent.
   		The bid price for a given curreny in one location is greaterthan the ask price in another location.
   		The ask price for a given currency in one location is greaterthan the bid price in another location.