Calculate the bid and ask cross-rate USD-EUR

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Question - You launch a start-up in California, USA, offering remote consulting services worldwide. The first month you get contacted by three clients, one in Germany, one in New Zealand, and one in Great Britain. You would like to charge USD 1,000 to each of the three clients for an online consultation, but invoiced in their home currencies. Your bank offers you the following bid-ask quotes: USD/EUR 1.2-1.3, USD/NZD 0.67- 0.69, and USD/GBP 1.9-2.

1) Using the information on the currency rates above, calculate the bid and ask cross-rate USD/EUR. Comment on how it compares to the direct quote and explain why they differ.

2) Explain the difference between the concept of arbitrage and the concept of shopping around. Then argue whether your answer to the previous question suggests any opportunity for either arbitrage or shopping around (or both).

Reference no: EM133003375

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