The current direct quote in New York is .01075 dollars per yen. Suppose the current direct quote in Tokyo is 91
yen per dollar.
What is the appropriate indirect quote in New York? What will arbitrageurs do to eliminate the
differential rates in these markets?
Indirect quote in New York = 1/.01075 = 93.023 yen per dollar.
Arbitrageurs will buy yen in New York where the price is .01075 dollars per yen and sell yen in Tokyo where the price
is .01099 dollars per yen. The increase in demand in New York will increase the price while the selling pressure in
Tokyo will lower the price.
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