(Choose 1 answer)
Suppose you observe the following exchange rates: €1 = $.85; £1 = $1.60; and €2.00 = £1.00.Starting with $1,000,000, how can you make money?
A. Exchange $1m for £625,000 at £1 = $1.60. Buy €1,250,000 at €2 = £1.00; trade for $1,062,500 at €1 = $.85
B. Start with dollars, exchange for euros at €1 = $.85; exchange for pounds at €2.00 = £1.00; exchange for dollars at £1 = $1.60.
C. Start with euros; exchange for pounds; exchange for dollars; exchange for euros.
D. No arbitrage profit is possible.
2: 20
