Suppose £1 buys €1.50 in NY, Tokyo, and London.
Which of the following statements is true?
A. The cross rate and direct quote are the same, so there is no opportunity for three-point arbitrage
B. The cross rate and direct quote are the same, so there is an opportunity for three-point arbitrage
C. The cross rate and direct quote differ, so there is an opportunity for three-point arbitrage
D. The cross rate and direct quote differ, so there is no opportunity for three-point arbitrage
Answer: C. The cross rate and direct quote differ, so there is an opportunity for three-point arbitrage