Question

**Suppose you are a currency trader for BRADESCO and you
see the following currency quotes from CITI Bank, ITAU, and CAIXA
Economica Federal Banks.**

Bank |
Quotation Description |
Quote |

CITI Bank |
Exchange rate of Singapore dollar in U.S. $ |
$0.32 |

ITAU |
Exchange rate of pound in U.S. $ |
$1.50 |

CAIXA Economica Federal Banks |
Exchange rate of pound in Singapore dollars |
S$4.50 |

**a. (8 pts) Calculate the no arbitrage cross exchange
rate for S$/£, and determine whether there is and arbitrage
opportunity. Make sure you explain your answer fully.**

**b. (10 pts) If there is an arbitrage opportunity,
assuming you have $100 million to use for trading currencies,
detail all the steps you will take to make arbitrage profit in a
triangular arbitrage case. Indicate how much money you will get for
each transaction, and show your ending profit. Please note that you
have to end up in the currency you start off with which is the US
$. If your answer to a is that there is no arbitrage opportunity
then please just indicate so as the answer for**

Answer #1

a. Cross exchange rate of dollar to pound

=USD/Singapore dollars*Singapore dollars/pound

A person has one dollar

He can convert it to 3.125 (1/.32) Singapore dollars from Citi bank.

He can further convert it to .69 (3.125/4.5) pounds from CAIXA Economica Federal Banks

He can convert it back to 1.04(.69*1.5) dollars from ITAU bank

So there is an arbitrage opportunity. The person started with one dollar and at the end got 1.04 dollars earning a profit of .04 dollars.

b. An investor had 100000000 dollars

He can convert it to 3.12500000000 (1/.32) Singapore dollars from Citi bank.

He can further convert it to 69000000 (3.125/4.5) pounds from CAIXA Economica Federal Banks

He can convert it back to 104000000(.69*1.5) dollars from ITAU bank

The investor can make a profit of (104000000-100000000) or 4000000 dollars.

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...

2. Given the following three currency quotes given by a Tokyo
bank and a London bank:
¥110.22/$
¥142.64/₤
₤0.8060/$
Please answer parts (a) and (b) in the order they are given.
a. Show whether there is an arbitrage opportunity implied in
these three quotes.
b. Starting with a nominal $68 million, show how much arbitrage
profit (if any) you can make by trading the currencies at the given
rates.

Assume you are a currency trader and have an initial SF
12,000,000 to trade. You can buy or sell currencies at the rates
stated below: Mt. Fuji Bank ¥ 92.00/$ Mt. Rushmore Bank SF 1.02/$
Mt. Blanc Bank ¥ 90.00/SF Can you make a profit via triangular
arbitrage? If so, show the steps and calculate the amount of profit
in Swiss francs. [10 marks]

Assume that you are a trader with Barclays Bank in London. From
the screen on your terminal, you notice that HSBC Bank is quoting $
1.5150 / £ 1.00. Credit Suisse is quoting SF 1.4150 / $ 1.00. You
learn that UBS is making a direct market between Swiss franc and
British pound, with a current SF/ £ quote of 2.1625. Assume you
have $ 100,000 to conduct the arbitrage.
a) Is there an arbitrage opportunity?
Show the required calculations....

Jane Cruise has U.S. dollars ($) amounting to $1,000,000, and is
provided with the following quotes:
Bank C: Euro/US dollar = €0.8529/$
Bank C: British pound /US dollar = £0.7501/$
Bank D: British pound/Euro = £0.8664/€
Jane did her own direct cross rate calculation of the British
pound/Euro and according to her the British pound/Euro = £0.8664/€
quotation from Bank D, provides her with an arbitrage opportunity,
since the direct cross rate, based on the quotations of Bank C is...

Citibank quotes U.S. dollar per pound: $1.5000/£
National Westminster quotes euros per pound: €2.0000/£
Deutschebank quotes U.S. dollar per euro: $0.7550/€
c. Suppose now that National Westminster quotes euros per pound
at €1.9800/£. Using your answer in part (a), show how you, as
currency trader at Citibank with €1,000,000 can make an intermarket
arbitrage profit in detail. Show the profit in Euro.

Use the following information to answer the next two
questions.
Suppose you see the following quotes for pounds at three
banks.
Bank X:$1.255-65
Bank Y:$1.245-59
Bank Z:$1.258-61
Find the locational arbitrage profit available to someone with
access to $1,000,000
9638.55
0
1593.63
3182.18
6.25 points
QUESTION 4
The ask quote at Bank Y must increase to prevent the arbitrage
opportunity found in the previous question.
True
False

Assume you are a trader with Deutsche Bank. From the quote
screen on your computer terminal, you notice that Dresdner Bank is
quoting €0.855/$1.00 Credit Suisse is offering SF1.1825/$1.00.
UBS’s current direct quoting €/SF currently @ € 0.754/SF
i. Prove and explain whether at these quoted rates there a
chance for triangular arbitrage (Hint: Use the no arbitrage cross
exchange rate here).
ii. Show and explain how you can make a triangular arbitrage
profit by trading at these prices. (Ignore...

A foreign exchange trader at EXIM Bank can invest $100000, or
the foreign currency equivalent of the bank's short term funds, in
a covered interest arbitrage with india. Using the following
quotes, can the trader make covered interest arbitrage (CIA)
profit?
Arrbitrage funds available $100,000
Spot exchange rate rs/$ is 73
3 month forward rate rs/$ is 75
US dollar 3-month interest rate 4%
Danish kroner 3 month interest rate 6%

Triangular Arbitrage
As of Sunday, October 27th, 2019, 02:50 pm (GMT) the following
quotes apply.
Currency
quote
Value of Canadian dollar in U.S. dollars
0.7657
Value of New Zealand dollar in U.S. dollars
0.6349
Value of Canadian dollar in New Zealand dollars
1.2298
Question:
Given the information above, is “triangular arbitrage” possible?
Why? Or Why not? If it is possible,
explain the steps that would reflect the “triangular arbitrage”
process and compute the potential
profit from this strategy if you...

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