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Question - Doug Bernard specializes in cross-rate arbitrage. He notices the following quotes: USD/CHF = 0.9019 AUD/USD = 0.7634 and AUD/CHF = 0.6853
He has $1,000,000 to do arbitrage. He believes the USD/CHF is out of sync. He believes that he can make money selling USD (buying francs)
Ignoring transaction costs, how much would Doug Bernard make or lose if he follows his belief.
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
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