Question

Given the following two sets of quotations by two currency dealers: Dealer A                               &n

  1. Given the following two sets of quotations by two currency dealers:

Dealer A                                              Dealer B

     Bid                  Ask                             Bid                    Ask

$1.1160/€         $1.1390/€                     $1.0980/€         $1.1040/€                    

  1. Show whether these two sets of quotations are out of equilibrium to a degree that would lead to an arbitrage opportunity in the absence of any transaction costs beyond the bid/ask spread.
  2. Prove your point by showing the trading activities that you need to perform starting with a nominal sum of $80 million.

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