Calculate the implied bilateral exchange rate

Reference no: EM131485098

Question: Choose a less-developed country that interests you or which you are assigned. Using the exchange rate data located at https://www.oanda.com/converter/classic:

a. list the bilateral exchange rate for today for 1 unit of your country's currency with the euro (write this as: 1 unit of (your country's currency) = x units of euro);

b. list the bilateral exchange rate for today for 1 unit of your country's currency with the US dollar;

c. now calculate the implied bilateral exchange rate between 1 US dollar and the euro from what you have found from the two bilateral exchange rates for your country above;

d. now look up and list the actual bilateral exchange rate of 1 US dollar and the euro as found at the OANDA website. Is there any potential for "arbitrage" suggested by differences in the implied bilateral rate and the actual bilateral rate? In other words, is there enough difference between the implied rate and the actual rate that one could exchange dollars for euros (or vice versa) and make a known profit? Explain.

Reference no: EM131485098

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