Assume that the yen/dollar exchange rate quoted in London at 3 p.m.is $\times$120 = $1,and that the New York yen/dollar exchange rate at the same time is $\times$123 = $1.What will be the net profit if a dealer takes one million dollars to purchase $\times$123 million in New York and engages in an arbitrage trade?

Question

Quizplus · Accepted Answer

$\times$123 million could be sold for dollars in London to get $1,025,000 ($\times$123 million / 120).Net profit = $1,025,000 - $1,000,000 = $25,000.

Assume That the Yen/dollar Exchange Rate Quoted in London at 3