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MAFA problem..!!

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(Querist)
10 January 2009 got stuck with following problem..pls advise..!!

The Price of the pound sterling was quoted at $ 1.80 in New York and on the same date the DM spot rate was quoted at $ 0.40.

What would be the expected price of the pound to be in Germany? If the pound was quoted in Frankfurt at DM 4.40/pound, what would be done to profit from the situation..?

Thanks...
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CA ABHISEK KUMAR SINGHANIA

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CA ABHISEK KUMAR SINGHANIA (Expert)
10 January 2009 In new York,
1Pound=$1.8 ie. $/Pound=1.8
1DM=$.4 ie. $/DM=.4 ie. DM/$=1/.4
ie.DM/Pound=DM/$*$/Pound
=1/.4*1.8=4.5
ie. 1Pound=DM 4.5

If the pound was quoted in Frankfurt at DM 4.4/Pound then to make profit buy Pound from Franfurt and sell it in New York.
Hope you understood.
Thanks
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Sunali

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Sunali (Querist)
10 January 2009 yes I did..Thank you..
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