(Solution) - Suppose the Japanese yen exchange rate is 123 1 -(2025 Original AI-Free Solution)

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Suppose the Japanese yen exchange rate is ?123 = $1, and the British pound exchange rate is ? = $1.92.
a. What is the cross-rate in terms of yen per pound?
b. Suppose the cross-rate is ?215 = ?1. Is there an arbitrage opportunity here? If there is, explain how to take advantage of the mispricing.