Explain the rationale behind the formula used

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1. The euro is quoted as $/€ = 1.1420-1.1425, and the Canadian dollar is quoted as C$/US$ =1.3540-1.3545. What is the direct quotation (bid and ask) for the euro in Canada? Explain therationale behind the formula used.

2. How large would transactions costs (in percentage) have to be to make triangular arbitragebetween the exchange rates S$/£= $1.5422/£, S$/€ = $0.9251/€, and S€/£ = €1.6650/£ profitable?

3. The U.S. and the country of Rueland have the same real interest rate of 3%. The expectedinflation over the next year is 6 percent in the U.S. versus 21% in Rueland. Interest rate parityexists. The one-year currency futures contract on Rueland's currency (called the ru) is priced at$.40 per ru. What is the spot rate of the ru

Reference no: EM13843003

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