You Are a U

question 50

Multiple Choice

You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.50 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.25 how can you make money?

• A)No arbitrage is possible.
• B)Buy euro at $1.50/€, buy £ at €1.25/£, sell £ at $2/£.
• C)Buy £ $2/£, buy € at €1.25/£, sell € at $1.50/€.

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