If 1 euro is priced at $1.25 and if 1 euro will also buy 88 Japanese yen (€1 = ¥88), in equilibrium, with no arbitrage opportunities, how much is the cross rate between the yen and the dollar (yen-dollar rate)?
A) ¥150/$
B) ¥70.4/$
C) ¥20/$
D) ¥5/$

Question

Quizplus · Accepted Answer

To find the cross rate between yen and dollar, we need to convert both currencies to a common currency, in this case euros.

First, we can find the dollar-euro rate by taking the reciprocal of the euro-dollar rate:

$1/€1.25 = $0.80/€

Next, we can find the yen-euro rate:

¥88/€1

To find the yen-dollar rate, we can multiply these two rates:

¥88/€1 * $0.80/€ = ¥70.4/$

Therefore, the answer is B.

If 1 Euro Is Priced at $1