b. What does the term arbitrage profit mean?
Arbitrage profit means riskless profit, this is possible thanks to arbitrageurs who are individuals involved in the process of buying and selling in more than one country to achieve this riskless profit.
c. What can a firm do to reduce exchange risk?
In order for a firm to reduce its exchange risk some firms use forward-market and money-market hedges, nonetheless when these tools are not available MNC apply leading and lagging strategies which are practiced to defer income and thereby delay paying taxes and to create unhedged positions in order to speculate; cash managers may delay paying out currencies they expect to appreciate and accelerate paying out currencies they expect to …show more content…
An American business needs to pay (a) 15,000 Canadian dollars, (b) 1.5 million yen, and (c) 55,000 Swiss francs to businesses abroad. What are the dollar payments to the respective countries?
We will use spot rates for calculations since time of payment is not