Final answer:
A dealer could profit from the difference in the euro/dollar exchange rate between Tokyo and New York through (Option b) arbitrage, which entails buying currency in one market where it is cheaper and selling it in another where it is more expensive.
Step-by-step explanation:
If the euro/dollar exchange rate quoted in Tokyo at 6 a.m. is €1 = $1.00, and the New York rate at the same time (5 p.m. New York time) is €1 = $1.35, a dealer could exploit this difference to make a profit through a strategy called arbitrage. Arbitrage involves buying a currency at a lower price in one market and simultaneously selling it at a higher price in another market. No exchange of goods or services is involved, just the currency itself.
For instance, an arbitrageur could buy euros in Tokyo, where they are cheaper, and sell them in New York, where they are more expensive, thus securing an instant profit of $0.35 per euro. This action does not involve the typical buy-and-hold strategy seen in carry trades, nor does it involve a contractual agreement like a forward exchange. It also doesn't entail a reciprocal exchange of goods as seen in countertrade, or the exchange of different currencies with the intention of offsetting risk, as with a currency swap.