Chapter 3 The Foreign Exchange__ Market.pptVIP

Fixed exchange rates ￡ (billions) Exchange rate $per ￡ S E 1.98 1.60 270 320 300 B A D Current Arrangement Textbook p39 Arbitrage within the spot exchange market What is an arbitrage? An arbitrage is the process of buying and selling to make a riskless pure profit. The function of arbitrages Arbitrages can ensure the rates in different locations are essentially the same and the rates and cross rates are related and consistent among themselves. The result of arbitrages are there will not be any arbitrage opportunities in the market. Arbitrage within the spot exchange market Arbitrage is the