The current spot exchange rate is 10943 in yen a particular, Ask an Expert

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The current spot exchange rate is 109.43 (in Yen). A particular commodity sells for $5,000 in the Unites Sates and 600,000 (in Yen) in Japan.

Part A- Does the law of one price hold? If not explain how to profit through arbitrage.

Part B- If it costs 60,000 to transport the commodity from the United States to Japan, is there still an arbitrage opporunity? At what exchange rate (in yen per dollar) would buying the commodity in the United States and shipping it to sell in Japan become profitable?

Part C- Given shipping costs of 60,000 (in Yen), at what exchange ratewould it be perofitable to buy the comodity in Japan and ship it to the United States to sell? Comment o the general lesson from parts A-C

Part D- Taking the commodity prices in the United States and Japan as given, at what exchange rate (in terms of Yen per dollar) would the law of one price hold ignorning shipping costs.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91727299

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