8*) Say that you observed the three following exchange rates prevailing in a market. $1 =...

8*) Say that you observed the three following exchange rates prevailing in a market.

$1 = SKr 7.3068 €1 = $ 1.2572 €1 = SKr 9.4541

Can you see an opportunity for arbitrage? Explain the steps.

If so, assuming that you have $1m to invest, what is the profit you can earn from pursuing your strategy (once)?

(assume no transaction costs and no bid-ask spreads etc)

Hint: if you are stuck, try to work out what the €-SKr rate should be.

Expert Solution

jeff jeffy answered 1 year ago

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