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Use the following information to answer this question. The Indian rupee to US dollar exchange rate...

Use the following information to answer this question. The Indian rupee to US dollar exchange rate is quoted at Bank A as INR 74 =1 USD. The Canadian dollar (CAD) to US dollar exchange rate is quoted at Bank B as CAD 1.3 = 1 USD. You learn that Bank C is making a direct market between the Indian rupee and the Canadian dollar INR/CAD quote of 56 INR = 1 CAD.

How much profit can an astute trader with $5,348,673 make from triangular arbitrage between Banks A, B, and C?

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Answer #1

The trader will start with USD, convert it into INR, then into CAD and then back into USD.

He will recieve $ 5,436,836.94 at the end of all the transactions as shown below in the ima, hence making a profit of $ 88,163.94

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