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Describe transaction you would take to exploit arbitrage

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1) You observe the exchange rates from the following 4 currencies(US, EU, UK, and Japan):

a. $1.19/€, $1.30/£, $0.0091/¥

b. €0.84/$, €1.09/£, €0.0076/¥

c. £0.77/$, £.91/€, £0.0055/¥

d. ¥110.27/$, ¥130.77/€, ¥183.26/£

Suppose that you incur 2% transaction costs. That is, if you attempt to convert one currency to another, you only get 98% of the quoted rate. So with €1, you can get .98*$1.19 = $1.17

There is an arbitrage opportunity in this market. Find it and describe each transaction you would take to exploit it. If a large amount of money went through this process, this would exert pressure on these exchange rates. For each transaction in your arbitrage strategy, explain how that transaction would impact currency values.

Reference no: EM131653186

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