Final answer:
The quotes present a potential arbitrage opportunity where one could exploit the price differences for a profit, assuming no transaction costs.
Step-by-step explanation:
The quotes provided by the three banks, Bank A at 121.15-121.25, Bank B at 121.30-121.35, and Bank C at 121.15-121.35 for the USD:JPY exchange rate, suggest a narrow spread amongst the banks and are reasonable given market conditions. However, the simultaneous quotes do present a potential arbitrage opportunity. One could buy USD at the lower end of Bank A or Bank C's quote (121.15 JPY per USD) and sell at the higher end of Bank B's quote (121.35 JPY per USD). This would result in a profit of 0.20 yen per dollar before considering transaction costs.
Arbitrage opportunities are relatively rare and usually disappear quickly as they are identified and exploited, which brings the prices back into balance across the market. Therefore, the presence of an arbitrage opportunity might also suggest transient inefficiencies in the market or possible differences in the banks' access to information or assumptions about the market. In the real-world application of this strategy, one must also take into account transaction costs and other practical considerations that could affect.