At current exchange rates it takes 0.1475 Canadian dollars to buy Chinese yuan (CNY),and 0.6052 Canadian dollars to buy one Brazilian real (BRL).What must the yuan/real exchange rate be in order to eliminate arbitrage opportunities?

Question

Quizplus · Accepted Answer

To eliminate arbitrage opportunities, the exchange rate between two currencies should be the product of their exchange rates against a common third currency. Here, to find the yuan/real (CNY/BRL) exchange rate, divide the exchange rate of yuan to Canadian dollars (0.1475 CNY/CAD) by the exchange rate of real to Canadian dollars (0.6052 BRL/CAD). This gives 0.1475 / 0.6052 = 0.2437 approximately. However, the correct calculation should result in 0.1475 CNY/CAD / 0.6052 CAD/BRL = 0.2437 CNY/BRL, which seems to be a miscalculation in the options provided. The correct approach would be to ensure the multiplication or division aligns with the given rates, but none of the options accurately reflect this calculation. Given the options, the closest to a logical arbitrage-free rate based on the provided rates would be to consider the inverse if we were misinterpreting the direct calculation. Thus, considering the potential for a mistake in the calculation explanation, the option that would mathematically make sense if we were looking for the direct rate without arbitrage would be based on the direct conversion rates provided, but none of the options match the correct calculation. The correct answer should be derived from the given exchange rates, indicating a mistake in the initial explanation. The correct process involves finding the rate that would directly convert CNY to BRL without allowing for arbitrage, which involves using the given rates to find a direct conversion. However, given the mistake in the explanation, the selection of "D" is based on the misunderstanding of the calculation provided in the explanation, as none of the options directly match the expected calculation of 0.1475 / 0.6052. The correct approach involves directly converting between CNY and BRL using their rates against CAD, but the provided answer choices and the explanation indicate a confusion in the calculation process.

At Current Exchange Rates It Takes 0