Question

SHOW ALL WORK PLEASE

4. Triangular Arbitrage

Riskless profit using 10,000,000 Swiss franc. The following exchange rates are available to you. (You can buy or sell at the stated rates.)

Mt. Fuji Bank
Mt. Rushmore Bank

Mt. Blanc Bank

¥120.00/$ SF 1.6000/$ ¥80.00/SF

Answer 1

Mt. Fuji Bank: ¥120.00/$

Mt. Rushmore Bank: SF 1.6000/$

Mt. Blanc Bank: ¥80.00/SF

Step 1: Exchange Swiss franc for ¥ from Mt. Blanc Bank

10,000,000*80.00 = ¥800,000,000

Step 2: Exchange ¥800,000,000 for $ from Mt. Fuji Bank

800,000,000/120.00 = $6,666,666.666666667

Step 3: Exchange $6,666,666.666666667 for SF from Mt. Rushmore Bank

$6,666,666.666666667*1.60 = SF 10,666,666.666666668

Arbitrage profit = 10,666,666.666666668 - 10,000,000

Arbitrage profit = SF 666,666.666666668