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Topic: Business
Number of pages / Number of words: 2 / 333
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Note that if the above relationship did not hold there would be opportunities for cross currency arbitrage. For example suppose that S(F Fr/?) falls to 8. Then this implies that the exchange rate of the Lira against the French franc, S(Lira/F Fr) =298.875. Thus a French dealer with one million francs but wanting Lira could exchange these for 125,000 pounds in London and then simultaneously exchange them for 298,875,000 Lira...


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Note that if the above relationship did not hold there would be opportunities for cross currency arbitrage. For example suppose that S(F Fr/?) falls to 8. Then this implies that the exchange rate of the Lira against the French franc, S(Lira/F Fr) =298.875. Thus a French dealer with one million francs but wanting Lira could exchange these for 125,000 pounds in London and then simultaneously exchange them for 298,875,000 Lira...


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