Suppose You Observe the Following Exchange Rates: €1 =

question 14

Multiple Choice

Suppose you observe the following exchange rates: €1 = $.85; £1 = $1.60; and €2.00 = £1.00.Starting with $1,000,000,how can you make money?

• A)Exchange $1m for £625,000 at £1 = $1.60.Buy €1,250,000 at €2 = £1.00; trade for $1,062,500 at €1 = $.85.
• B)Start with dollars,exchange for euros at €1 = $.85; exchange for pounds at €2.00 = £1.00; exchange for dollars at £1 = $1.60.
• C)Start with euros; exchange for pounds; exchange for dollars; exchange for euros.
• D)No arbitrage profit is possible.

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Definitions:

Unit Variable Cost

The cost that varies with each unit produced, including materials and labor directly associated with production.

Marketing Manager

A professional responsible for overseeing the promotion and sales strategy of products or services.

Break-Even Point

The point at which the amount of goods produced or sold matches the total costs, leading to no profit or loss.

Variable Expenses

Costs that change in proportion to the level of goods or services produced by a business.