You are a U.S.-based treasurer with $1,000,000 to invest.The dollar-euro exchange rate is quoted as $1.20 = €1.00 and the dollar-pound exchange rate is quoted at $1.80 = £1.00.If a bank quotes you a cross rate of £1.00 = €1.50,how much money can an astute trader make?

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The cross rate implies that €1.00 = £0.6667. This means that if you exchange $1.00 for €0.8333, you can then exchange those euros for £0.5556. This gives you a total of £1.1111 for your original $1.00, which is a profit of 11.11%. If you start with $1,000,000, you can make a profit of $111,111.

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