Question

- You observe the following exchange rate quotes:

$ 1.1830 / EUR

$ 1.5240 / GBP

GBP 0.7815 / EUR

If you start with $ 1 million, what arbitrage profit in dollars can you make using triangular arbitrage?

**Please show work**

Answer #1

Please refer to the image below for the solution-

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1)Citibank quotes USD1.8500/GBP, Barclays quotes EUR1.5000/GBP,
and Dresdner quotes USD1.2000/EUR. If you have USD 1,000,000 to
invest, find the triangular arbitrage profit.
2)Amanda Smyth is a foreign exchange dealer for a bank in Texas.
She has USD 1,000,000 for a short-term money market investment and
wonders if she should invest in U.S. dollars for six months or make
a covered interest arbitrage (CIA) investment in the Japanese yen.
If she makes the CIA investment, what is the total amount that...

Take the following two exchange rates and compute the EUR/INR
cross exchange rate. INR12.1225/USD and EUR.8145/USD.
In the question above, if there is a direct cross exchange rate
of EUR.066215/INR, is there a triangular arbitrage opportunity? If
yes, start with $50,000 and indicate how much triangular arbitrage
profit exists for 1 trip around the triangle. Show your work

A. Take the following two exchange rates and compute the EUR/INR
cross exchange rate. INR12.1225/USD and EUR.8145/USD.
B. In question A, if there is a direct cross exchange rate of
EUR.066215/INR, is there a triangular arbitrage opportunity? If
yes, start with $50,000 and indicate how much triangular arbitrage
profit exists for 1 trip around the triangle.

Mary, has the following FOREX quotes:
1.1837 EUR/USD
0.7231 EUR/GBP
1.6388 GBP/USD
Will Mary be able to earn some profit for her institution by
playing the FOREX market by using the quotes she saw on her screen
when she returned from the terrace after the shopping disaster? If
so, compute the profit. What is such type of profit called?

Assume the following information:
Exchange rate of Singapore dollar in USD = 0.32 USD/SGD
Exchange rate of pound in USD = 1.45 USD/GBP
Exchange rate of pound in Singapore dollars = 4.88 SGD/GBP
If you have 1 million USD to conduct one cycle of triangular
arbitrage, what will be your profit?

Assume the following information:
Exchange rate of Singapore dollar in USD = 0.32 USD/SGD
Exchange rate of pound in USD = 1.49 USD/GBP
Exchange rate of pound in Singapore dollars = 4.8 SGD/GBP
If you have 1 million USD to conduct one cycle of triangular
arbitrage, what will be your profit?

Market
Quotation
FX Rate
Zurich
EUR / GBP
0.8832
Chicago
GBP / USD
1.2649
London
EUR / USD
1.1158
Is there an arbitrage opportunity? (ignore transactions costs
and taxes)
If there is an arbitrage opportunity, calculate the profit for
1,000,000 EUR and show all the transactions carried at each
market.

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....

You observe that the EUR/HKD spot exchange rate (i.e., the price
of 1 Euro in terms of Hong Kong Dollars) is 8.91 and the 1-year
EUR/HKD forward exchange rate is quoted at 9.5.(Total 10 marks)
(a) Does an arbitrage opportunity exist given that the
1-year deposit rates in Hong Kong and Europe and are 2.5% and 0.5%,
respectively?
(b) If so, outline an arbitrage strategy and explain
step by step why your strategy yields risk-free profits.

If the current spot exchange rate for quotes of JPY/GBP is
greater than the no-arbitrage 3-month forward exchange rate, the
3-month GBP interest rate is ???

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