Question

# 1. You are a foreign exchange trader and  you receive the following two quotes for spot trading:...

1. You are a foreign exchange trader and  you receive the following two quotes for spot trading:

- Bank A is willing to trade at \$3 per Swiss franc

- Bank B is willing to trade at 1 Swiss franc per dollar.

Is there an arbitrage opportunity to make profit?

(True stands for yes, false stands for no)

2. You are a foreign exchange trader and  you receive the following two quotes for spot trading:

- Bank A is willing to trade at \$2 per Swiss franc

- Bank B is willing to trade at 0.5 Swiss franc per dollar.

Is there an arbitrage opportunity to make profit?

(True stands for yes, false stands for no)

3. Exchange rate for Turkish Lira (TL) is \$0.25

Exchange rate for Swiss Franc is \$1.05

The cross rate between Franc and TL is 0.24 francs per TL.

Is there an triangle arbitrage opportunity to make profit?

4.Exchange rate for Turkish Lira (TL) is \$1.6

Exchange rate for Swiss Franc is \$0.50

The cross rate between franc and TL is 3 francs per TL.

You already know there is an arbitrage opportunity in this case from lecture notes. How much would the profit be if the investor has \$100?

Question 1

Suppose, we have \$1.

Bank B is willing to trade 1 Swiss franc per dollar.

So, trading with Bank B, we can purchase 1 Swiss franc with our \$1.

Now, we have 1 Swiss franc.

Bank A is willing to trade \$3 per Swiss franc.

So, trading with Bank A, we can purchase \$3 with our 1 Swiss franc.

Now, we have \$3.

We started with \$1 and ended up with \$3. So, we have made a profit of \$2 through arbitrage.

Thus, there is an arbitrage opportunity to make the profit.

Hence, the given statement is True.

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