The Exchange Rates in New York Are ¥1000 = $9

question 1

Multiple Choice

The exchange rates in New York are ¥1000 = $9 and the exchange rates in Tokyo are ¥171 = $1.5.You incur a transaction fee of 0.1% when buying and selling in each market.You have $1 million dollars with which to purchase foreign currency.What is your maximum potential profit from exploiting the arbitrage opportunity?

• A)$0
• B)$0.024 million
• C)$0.026 million
• D)-$0.024 million
• E)-$0.026 million

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Definitions:

Rate of Return

The gain or loss of an investment over a specified period, expressed as a percentage of the investment's cost.

Simple Interest

Interest that is determined just on the original amount, or on the remaining unpaid portion of that amount.

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The provincial government responsible for public policy, regulation, and administration in the province of Alberta, Canada.

Treasury Bill

Short-term government securities issued at a discount from the face value and paying no interest, maturing usually in one year or less.