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Suppose that yesterday the dollar-euro exchange rate in Frankfurt, Germany was 1.10, but today in New...

Suppose that yesterday the dollar-euro exchange rate in Frankfurt, Germany was 1.10, but today in New York it is 1.15. Are there arbitrage opportunities present? Explain.

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Answer #1

Dollar-euro exchange rate in Frankfurt, Germany was $1.10 per Euro yesterday and today in New York it is $1.15 per euro. This is not create arbitrage opportunity. this because today might be dollar-euro exchange rate in Frankfurt, Germany is $1.15 that is equal to exchange rate New York.

Arbitrage opportunity exists when price of underlying assets or exchange is different in two market at same time and difference between price or excess change rate is higher than transaction cost.

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