Question

A money manager with $1,000,000 to invest notices that the dollar/yen exchange rate is quoted as ¥125/$ and the dollar/franc exchange rate is quoted at CHF.80/$. If a bank quotes you a cross rate of ¥156.25/CHF how much money can you make via triangular arbitrage (in terms of dollars)? Round intermediate steps to four decimals and your final answer to two decimals. Do not use currency symbols or words when entering your response.

How will currency prices adjust to eliminate the arbitrage opportunity in the previous question?

The yen will appreciate against the dollar. |
||

The franc will depreciate against the dollar. |
||

The franc will appreciate against the yen. |
||

No adjustment is necessary since arbitrage was not possible. |

Answer #1

Investment Available = $ 1 million, Dollar-Yen Exchange Rate = Y 125/$, Dollar-Franc Exchange Rate = CHF 0.8/$ and Y 156.25/CHF

In order to execute triangular arbitrage one needs to undertake the following steps:

Convert $1 million into Yen to yield Y 125 million

Convert Y 125 million into CHF to yield = 125 / 156.25 = 0.8 million CHF

Convert 0.8 million CHF to $ to yield = 0.8 / 0.8 = $ 1 million

These set of steps indicate that there are no opportunities of a
triangular arbitrage as no profit can be made.

Arbitrage Profit = $ 0

Hence, the correct option is **(D).**

An investment banker
has $10,000,000 to invest in the foreign currency market. The
dollar-euro exchange rate is quoted as $1.50/ € and the
dollar-pound exchange rate is quoted at $1.60/£. If a bank quotes a
cross rate of €1.10/£, how much money can she make (in terms of
dollars) via triangular arbitrage if she is charged a 2% interest
rate on borrowed funds? Round intermediate steps to four
decimals.
312,500
112,500
0
1,420,833.33
Based on the
information provided in...

Construct cross-rate for bid & ask prices
IF dollar-euro exchange rate is USD1.25 = EUR1.00 and the
dollar-Yen exchange rate is JPY200 = USD1.00. What is the EUR-JPY
cross rate?
USD equivalent
Country
BID
ASK
Switzerland (Franc) CHF
$0.65/CHF
$0.68/CHF
Euro €
$1.15/€
$1.2/€
Triangular Arbitrage
Helen Depp, who trades at an FX cubicle in a big bank in UK
notices the following exchange rates of the USD per pound and USD
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$1.2195/€ or €0.82/$
$1.2262/£ or
£0.8155/$...

Suppose you are a U.S.-based investor with $1,000,000 to invest.
The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the
dollar-pound exchange rate is quoted at $2.00 = £1.00. If a bank
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You specializes in cross-rate arbitrage. You notices the
following quotes:
Swiss franc/dollar = SFr1.5971/$
Australian dollar/US dollar = A$1.8215/$
Australian dollar/Swiss franc = A$1.1450/SFr
Ignoring transaction costs, does you have an arbitrage
opportunity based on these quotes?
If there is an arbitrage opportunity, what steps would you take
to make an arbitrage profit, and
how much would you profit if you has $1,000,000 available for
this purpose?
Thank you!

A young forex trader specializes in cross-rate arbitrage. She
notices the following quotes:
Swiss franc/dollar = SFr1.0876/$
Australian dollar/U.S. dollar = A$0.8922/$
Australian dollar/Swiss franc = A$0.8223/SFr
Ignoring transaction costs, does she have an arbitrage
opportunity based on these quotes? If there is an arbitrage
opportunity, what steps would she take to make an arbitrage profit,
and how would she profit if she has $1,000,000 available for this
purpose.

Assume the spot exchange rate is 106.90 Japanese yen per U.S.
dollar. If the inflation rate in the U.S. is expected to be 2% and
the inflation rate in Japan is 1% for the next two years, then
the:
exchange rate will increase.
exchange rate will double.
dollar will appreciate relative to the yen.
dollar will become more valuable.
Yen will strengthen against the dollar.

Suppose Japanese yen money market annual rate is .60% and U.S.
money market has an annual rate of 4.50%. The predictions on the
spot rate in 6 months made by financial analysts X and Y are ¥116/$
and ¥114/$ respectively. If the spot rate today is ¥115/$, which
prediction do you think is more reasonable, why?
A) Analysts X, because US dollar interest is higher than
Japanese yen, so ¥ should appreciate against $.
B) Analysts X, because US dollar...

Now suppose the exchange rate between the euro and the dollar in
New York is $/€ = $1.15/€; the exchange rate between the dollar and
the yen is ¥/$ = ¥108/$; the exchange rate between the yen and the
euro is 126.50.
1)Do you see an arbitrage opportunity here? Briefly explain.
2)If there is and your home currency is the US dollar how much
profit can you make if you engage $1,000,000 in an arbitrage
transaction?

No excel.Use the following information to answer the next two
questions:5) The dollar/franc spot exchange rate is $1.055/CHF on
3/1, but you believe the franc will appreciate relative to the
dollar over the next few days. On 3/1, you decide to open a
position consisting of four Swiss franc futures contracts to trade
based on your belief. Each futures contract consists of 100,000
francs. The futures price 3/1 is $1.045/CHF. Your broker requires
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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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