Question

# 37--Given the following exchange rates, what arbitrage profit is available if you have \$1 million? ¥129.87/\$,...

37--Given the following exchange rates, what arbitrage profit is available if you have \$1 million? ¥129.87/\$, €1.1226/\$, ¥115.74/€

Select one:

a. \$460

b. -\$460

c. \$878

d. \$259,652

HI,

you have \$1,000,000 initially

so at first from this \$1,000,000 you will buy Euro

1 dollar = 1.1226 Euro

\$1,000,000 = 1.1226*1000000 = \$1,122,600 Euro

Now from this Euro amount you will buy Yen

1 Euro =115.74 Yen

1,122,600 Euro = 1122600*115.74 = 129,929,724 Yen

From Yen we will buy dollar again

1 Yen = 1/129.87 dollar

129,929,724 Yen = 129929724/129.87 = \$1,000,459.88

So arbitrage price = 1,000,459.88 -1,000,000 = \$459.88 ~\$460

Hence option a is correct here.

Thanks

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