Question

Consider the following. One of the scenarios is an example of triangular arbitrage opportunity. Pick the correct answer. A. buying a currency at NAB's ask and selling at ANZ's bid, which is higher than NAB's ask. B. buying Hong Kong dollars from NAB (quoted at A$.55) that has quoted the South African rand (SAR)/ Hong Kong dollar (HK$) exchange rate at SAR2.50 when the spot rate for the rand is A$.20. C. buying Hong Kong dollars from a bank (quoted at A$.55) that has quoted the South African rand/ Hong Kong dollar exchange rate at SAR3.00 when the spot rate for the rand is A$.20. D. converting funds to a foreign currency and investing the funds overseas. E. converting foreign funds to the local currency and investing the funds in the money market.

Answer 1

C. buying Hong Kong dollars from a bank (quoted at A$.55) that has quoted the South African rand/ Hong Kong dollar exchange rate at SAR3.00 when the spot rate for the rand is A$.20.

Calculation is given Below:-

we have 1 AUD

we bought HK$ from bank, Now we have = 1/.55 = 1.81 HK$

Now we convert that HK$ into SAR = 1.81*3 = 5.43 SAR

Now Convert that SAR into AU$ = 4.525*.2 = 1.086 AU$

so we had started with the 1 AU$ and Now we have 1.086 AU$ so we have Arbitarge Gain of = 0.086 AU$