Question

You observed the bid rate of the New Zealand dollar is $.3232 while the ask rate is $.3245 at Bank X. The bid rate of a New Zealand dollar is $.3324 while the ask rate is $.3342 at Bank Y. What would be your dollar amount profit if you use $1,000,000 to execute locational arbitrage?

Answer #1

We have the $ 1,000,000 for arbitrage | ||||

So, Firest We can buy the Australian dollarn from bank X becaue in this bank New Zealand dollar is cheap | ||||

So New Zeland Dollar = $ 1,000,000 / $ 0.3232 = | $ 30,94,059.41 | |||

Now We can sell this at Bank Y | ||||

In $ price = $ 30,94,4059.41 X $ 0.3342 = | $ 10,34,034.65 | |||

Less: Pruchase Prcie = | $ 10,00,000.00 | |||

Profit = | $ 34,034.65 | |||

With regards to Euro –credit loans, who are the borrowers? (1
point)
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Assume the bid rate of a New Zealand dollar is $0.330 while the
ask rate is $0.335 at Bank X. Assume the bid rate of the New
Zealand dollar is $0.320 while the ask rate is $.325 at Bank Y.
Given this information, what would be your gain if you use
$1,000,000 and execute locational arbitrage? (2 points)
You have $1,000,000 to invest:
Current spot rate of...

Bank 1 has a bid rate of $.70 and an ask rate of $.71 for the
New Zealand dollar. Bank 2 has a bid rate of $.71 and an ask rate
of $.715 for the New Zealand dollar. You use $5 million to engage
in locational arbitrage. How much will you end up with over and
above the $5 million you started with?

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...

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
per euro.
$1.2195/€ or €0.82/$
$1.2262/£ or
£0.8155/$...

Assume the following information:
USD/AUD, bid/ask: 0.68 / 0.72
USD/MXP, bid/ask: 0.072 / 0.075
MXP/AUD, bid/ask: 8.17 / 8.32
Assume you have 1 million USD to conduct one cycle of triangular
arbitrage. What will be your profit from implementing this
strategy? Remember to pay careful attention whether you're trading
at the bid or the ask with the bank.

Chicago Bank expects the exchange rate of the New Zealand dollar
(NZ$) to appreciate from its present level of $.50 to $.55 in 30
days.
Chicago Bank is able to borrow $20 million NZD on a short-term
basis from other banks. How you can earn profit and how much?
Currency Lending rate Borrowing Rate
U.S Dollar 6.72% 7.20%
New Zealand Dollars(NZ$) 6.48% 6.96%

What will happen if the following exchange rates (involving the
Australian dollar, the New Zealand dollar and the Hong Kong dollar)
are quoted in Sydney, Wellington and Hong Kong?(5) HKD/AUD
5.9809
NZD/AUD 1.1162
HKD/NZD 5.3860
Is there any arbitrage opportunity in the market? If yes, what
is your net profit if you have 1 unit of domestic currency?

Use the following information to answer the next two
questions.
Suppose you see the following quotes for pounds at three
banks.
Bank X:$1.255-65
Bank Y:$1.245-59
Bank Z:$1.258-61
Find the locational arbitrage profit available to someone with
access to $1,000,000
9638.55
0
1593.63
3182.18
6.25 points
QUESTION 4
The ask quote at Bank Y must increase to prevent the arbitrage
opportunity found in the previous question.
True
False

Triangular Arbitrage:
Ignore the bid ask spread and suppose
that you are given the following currency quotes for three markets
(C$ is the symbol for the Canadian $).
- Toronto: S($/C$
)= $0.80
Hamburg: S($/€ ) = $1.28
Vancouver: S(€/C$) = €0.58
a. Use the exchange rates from Toronto
and Hamburg to calculate the
implied euro
price of the Canadian $.
An arbitrage opportunity does exist. Suppose you start
with
$1,000,000. Show exactly how much
profit you would make...

The spot rate between
the U.S. dollar and the New Zealand dollar is $1 = NZD1.3362.
Assume the interest rate in the United States is 8 percent and in
New Zealand is 4 percent.
What should be the
3-month forward exchange rate? (Do not round intermediate
calculations. Round your answer to 4 decimal places.)

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