Macroeconomics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 29

Martha has $10,000 to invest in the foreign-exchange market. She's interested in trading U.S. dollars (USD) for euro (EUR) and Japanese yen (JPY). Using Table 17P-1 , determine the arbitrage profit/loss Martha will make in each of the following scenarios. ( Note: Any value less than $10 should be considered zero.) a. USD ã EUR ã JPY ã USD.
b. USD ã JPY ã EUR ã USD. c. Now look up the current exchange rates among any three currencies. Show that there are no arbitrage opportunities for the three currencies you chose.