Answer-first summary for fast verification
Answer: not make any arbitrage profits.
## Explanation To determine if arbitrage is possible, we need to calculate the implied EUR/USD cross rate from the interbank market and compare it with the dealer's quote. **Step 1: Calculate implied EUR/USD from interbank rates** We have: - DKK/EUR: 7.4524/7.4679 (DKK per EUR) - DKK/USD: 7.0820/7.0870 (DKK per USD) To get EUR/USD (EUR per USD), we use: EUR/USD = (DKK/USD) / (DKK/EUR) **Bid rate (EUR/USD):** Use the bid for DKK/USD and ask for DKK/EUR Bid = 7.0820 / 7.4679 = 0.9482 **Ask rate (EUR/USD):** Use the ask for DKK/USD and bid for DKK/EUR Ask = 7.0870 / 7.4524 = 0.9511 So the implied EUR/USD cross rate from interbank is: **0.9482/0.9511** **Step 2: Compare with dealer's quote** Dealer's quote: 0.9483/0.9510 - Dealer's bid (0.9483) is slightly higher than interbank's bid (0.9482) - Dealer's ask (0.9510) is slightly lower than interbank's ask (0.9511) This means the dealer is offering slightly better rates than the interbank market, so there's no arbitrage opportunity. The trader would not make any arbitrage profits.
Author: LeetQuiz Editorial Team
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Note: DKK/EUR is the amount of DKK per 1 EUR. DKK/USD is the amount of DKK per 1 USD.
If a dealer quoted a bid-offer of 0.9483/0.9510 for EUR/USD, a trader would most likely:
A
not make any arbitrage profits.
B
make arbitrage profits by buying USD from the dealer with EUR and selling it in the interbank market.
C
make arbitrage profits by buying EUR from the dealer with DKK and selling it in the interbank market.
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