Question

C$/US$ C$1.2312/US$

C$/SwissFranc(SF) C$0.8266/SF

SF/US$ SF1.5000/US$

Spot rate Is there an opportunity to arbitrage? If yes, please explain how to arbitrage and compute the gain/loss.

If not, explain why not.

You have C$1 million capital.

Show calculations

Answer 1

Solution :-

Given 1 US $ = C $ 1.2312 .........(A)

1 SF = C$ 0.8266 ............(B)

1 US $ = SF 1.500 .........(C)

Now from A and C we get

C$ 1.1232 = SF 1.500

1 SF = C$ 0.7488 ..........Cross Rate

As the Cross Rate and Direct Quote given between SF and C$ given are different So Arbitrage Opportunity Exist

Given We Have C$ 1 million = C$ 1,000,000

Now As per Cross Rate Calculated above Convert C$ 1 million into SF

C$ 1 miilion = 1,000,000 * 1 / 0.7488 = SF 1,335,470.09

Now Convert SF into C$ as per given direct exchange rate

SF 1,335,470.09 = 1,335,470.09 * $0.8266 = C$ 1,103,899.57

Therefore Arbitrage Profit = C$ 1,103,899.57 - C$ 1,000,000 = C$ 103,899.57

If there is any doubt please ask in comments

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