Suppоse the current bid аnd аsk spоt rаte quоtes are: $/£: 1.1125 – 30 $/€: 0.9885 – 95 a. What cross rate bid and ask quotes in terms of €/£ do these prices suggest? (6 points) b. Suppose a dealer provides cross-rate bid and ask quotes of €/£: 1.1275 - 1.1290 Do these quotes suggest an arbitrage opportunity? If yes, describe why that is the case. (4 points) c. If there is an arbitrage opportunity, describe the strategy to exploit the opportunity and calculate the arbitrage profits. Start by borrowing 100 units in one currency and show that at the end of your trades you have more than you borrowed. (8 points)
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