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:

Economic Well-Being

A measure of the economic success and quality of life for individuals and nations, often evaluated through income levels, employment rates, and access to resources.

Leisure Time

Free time that an individual can use for relaxation, recreation, or personal pursuits, not consumed by work or essential domestic activities.

Multiple Counting

In economics, it refers to the error of counting the same product or value more than once when calculating gross domestic product.

Psychic Costs

The mental and emotional energy expended by an individual in the process of decision-making or as a result of stressful economic conditions.