Twin Cities Business Daily

How to find exchange rate with given information?

The current yen - dollar exchange rate is ¥89 to $1. Further, the current dollar - pound exchange rate is $1.52 to 1₤. Based upon this information, what must be the yen – pound exchange rate? What would happen if the actual yen – pound exchange rate did not equal this value? Explain.

Public Comments

1. The yen pound exchange rate is 135.28 Yen to the pound (1.52 * 89). If the actual exchange rate is different from that value, it is possible to make a riskless profit (arbitrage) by exchanging the pound to the US$ first and then to the Yen.