Question

Part II: Triangular Arbitrage The quotations of exchange rates of US dollars, British pound, and the New Zealand dollar in National Bank is as below. Quoted Bid Price Quoted Ask Price USD/GBP 0.65 0.66 NZD/USD 0.50 0.52 GBP/NZD 2.72 2.75 Is the triangular arbitrage feasible? If yes, how much is the triangular arbitrage profit when you have $500,000 to invest. If no, please explain why

Answer #1

Answer is yes arbitrage possible and profit = $29773.25

Additional note : in answer I said USD / GBP is underpriced - beacuse of this I have started selling USD using quote 2 and not quote 1.

Bocz it is underpriced I have buy USD in last step.

Part II: Triangular Arbitrage
The quotations of exchange rates of US dollars, British pound,
and the New Zealand dollar in National Bank is as below.
Quoted Bid Price
Quoted Ask Price
USD/GBP
0.65
0.66
NZD/USD
0.50
0.52
GBP/NZD
2.72
2.75
Is the triangular arbitrage feasible? If yes, how much is the
triangular arbitrage profit when you have $500,000 to invest. If
no, please explain why (20 points)

National Bank quotes the following for the British pound and
the New Zealand dollar:
Quoted Bid Price
Quoted Ask Price
Value of a British pound (£) in $
$1.61
$1.62
Value of a New Zealand dollar (NZ$) in $
$.55
$.56
Value of a British pound in
New Zealand dollars
NZ$2.95
NZ$2.96
Equilibrium cross-exchange
rate
NZ$2.875
NZ$2.945
Assume you have $100,000 to conduct
triangular arbitrage. Show step by step what transactions you will
make and what is...

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