Assume that the yen/dollar exchange rate quoted in Tokyo at 3:00 p.m. is ¥120 = $1, and the yen/dollar exchange rate quoted in New York at the same time is ¥123 = $1. A dealer in New York uses dollars to purchase yen and then immediately sells the yen to buy dollars in Tokyo, thereby making a profit. The dealer has engaged in
A) a currency swap.
B) an arbitrage.
C) an carry trade.
D) a straddle.

Question

Quizplus · Accepted Answer

Buying a currency low and selling it high is arbitrage.

Assume That the Yen/dollar Exchange Rate Quoted in Tokyo at 3:00