Assume That the Yen/dollar Exchange Rate Quoted in Tokyo at 3:00

question 21

Multiple Choice

Assume that the yen/dollar exchange rate quoted in Tokyo at 3:00 p.m. is ×120 = $1, and the yen/dollar exchange rate quoted in New York at the same time is ×123 = $1. A dealer in New York uses dollars to purchase yen and then immediately sells the yen to buy dollars in Tokyo, thereby making a profit. The dealer has engaged in a(n) _____.

• A) currency swap
• B) arbitrage
• C) carry trade
• D) straddle

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Definitions:

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