Question

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.

Answer 1

Solution :-

We Have Euro 1,000,0000

First Convert Euro into $ as per Deutschebank quotes U.S. dollar per euro: $0.7550/€

Therefore 1,000,000 Euro = 1,000,000 * 0.7550 = $ 755,000

Now Convert $ into Pound as per Citibank quotes U.S. dollar per pound: $1.5000/£

Now $ 755,000 = 755,000 / 1.50 = 503,333.33 Pound

Now Convert Pound into Euro as per National Westminster quotes euros per pound: €2.0000/£

Now 503,333.33 Pound = 503,333.33 * 2 = 1,006,666.67 Euro

Therefore Profit = 1,006,666.67 Euro - 1,000,000 Euro = 6,666.67 Euro

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