Suppose in New York £/$ = 1, while in Tokyo ¥/$=2.5, but in London £/¥ = 0.50. (a) (2) Is there any profit that could be made with a triangular arbitrage action? If so, describe an example of how such a profit may be earned and what the profit would be. Start with either buying or selling ¥1,000,000 in London. (b) (2) What will happen to the dollar-pound exchange rate and cross rates after arbitrageurs notice this profit opportunity?
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