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In: Finance

The current ¥/$ quote is 109.55 bid – 109.58 ask. How many US dollars does it...

  1. The current ¥/$ quote is 109.55 bid – 109.58 ask.
    1. How many US dollars does it take to buy 1 million yen?
    2. How many US dollars will be received for selling 1 million yen?
  1. If the Swiss franc (CHF)/US$ spot rate is 1.2741 bid – 1.2746 ask, what should be the no-arbitrage ¥/CHF cross-rates (bid and ask)?
  1. If you call your banker and get a ¥/CHF cross-rate quote of 85.793 bid – 85.801 ask, do you have an opportunity to make money? If so, explicitly show each necessary transaction. (Please clearly indicate the rate at which you are transacting.) Will this situation persist? Why or why not?

Solutions

Expert Solution

Summary:

Bid rate = rate of purchase

Ask rate = rate for sale

a. How many US dollars does it take to buy 1 million yen? -

Please refer attached image for the solution -

b. How many US dollars will be received for selling 1 million yen?

Please refer attached image for the solution -

a. what should be the no-arbitrage ¥/CHF cross-rates (bid and ask)?

Please refer attached image for the solution -

a. do you have an opportunity to make money?

Please refer attached image for the solution -

jeff jeffy answered 2 years ago
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