Computation of cross currency exchange rates.
Yesterday you picked up the Wall Street Journal and saw the following spot currency quotes:
in U.S. $ per U.S. $
Japan (Yen) .010124 98.775
U.K. (Pound) 1.4036 ________
Required:
a. Fill in the missing number (remember to show your work!).
b. What is the appropriate spot cross rate between the yen and the pound (£ or GBP)?
c. The Piggy Bank is currently quoting a spot rate of 140.00 yen per pound. Show how a British banker could use geographic arbitrage to profit from this bank's quote. What is the arbitrage profit per British Pound?