(Urgent) A dealer in South Africa quotes $ 0.1550-75/BWP for the Botswana Pula. A dealer in...

(Urgent) A dealer in South Africa quotes $ 0.1550-75/BWP for the Botswana Pula. A dealer in France quotes €0.1040-70/BWP. Another dealer quotes $1.5320-630/€ in New York.

a) Is there an opportunity to arbitrage for an American investor? Use $1,000,000 as the notional amount. Show all work.

b) Explain how the exchange rates will adjust to reach equilibrium and eliminate any arbitrage opportunities.

Expert Solution

jeff jeffy answered 2 years ago

A dealer in South Africa quotes $ 0.1550-75/BWP for the Botswana Pula. A dealer in France...

A dealer in South Africa quotes $ 0.1550-75/BWP for the Botswana Pula. A dealer in France quotes €0.1040-70/BWP. Another dealer quotes $1.5320-630/€ in New York. a) Is there an opportunity to arbitrage for an American investor? Use $1,000,000 as the notional amount. Show all work. b) Explain how the exchange rates will adjust to reach equilibrium and eliminate any arbitrage opportunities.

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