Question

Suppose you are in New York and notice the below exchange rates. Use these and $100 to conduct arbitrage and calculate the profit earned. 1 USD = 69.13 Indian Rupee, 1 USD = 1.33 Canadian Dollar, and 1 Canadian Dollar = 52.87 Indian Rupee. (8 pts.)

Answer 1

Ans.

1USD = 1.33 Canadian Dollar

1 Canadian Dollar = 52.87 Indian Rupees

1 USD = 69.13 Indian Rupees => 1 Indian Rupee = 1/69.13 USD = 0.01447 USD

Step 1- Buy Canadian Dollars worth $100

So, total Canadian Dollars bought = 133 Canadian Dollars

Step 2 - Buy Indian Rupees with 133 Canadian Dollars

So, total Indian Rupees bought = 133*52.87 = 7031.71 Indian Rupees

Step 3 - Buy USD from 7031.71 Indian Rupees

So, total USD bought = 7031.71*0.01447 = 101.72 USD

Thus, the arbitrage resulted in a gain of 1.72 USD or 1.72% on 100 USD investment.

* Please don’t forget to hit the thumbs up button, if you find the answer helpful.