Question

National Bank quotes the following for the British pound and the New Zealand dollar:​ ​ Quoted...

  1. 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 the arbitrage profit or loss? If arbitrage profit exists, what market forces would co-occur to eliminate the arbitrage opportunity? (5 points)

Homework Answers

Answer #1

Given $100,000


From USD to GBP - value of british pound in terms of USD, (GBP/USD = 1.62).

Hence Pounds = 10,0000 * (1/1.62) = GBP 61,728.4

From GBP to NZD - value of british pound in terms of NZD

(GBP/NZD = 2.95), Hence NZD = 61,728.4 * 2.95 = NZD 182,098.8

From NZD to USD - the value of NZD in terms of USD is given and we need to sell NZD, (NZD/USD = 0.55), Hence USD = 182,098.8 * 0.55 = USD 100,154.3

10,015.43-10,000 = $154.3

In this method we got profit, which is very minimal

but it will be vanished through transactions cost so no profit can be made

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Part II: Triangular Arbitrage The quotations of exchange rates of US dollars, British pound, and the...
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
Part II: Triangular Arbitrage The quotations of exchange rates of US dollars, British pound, and the...
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)
Quotes for one U.K. pound:          NY   London Bid price            $1.59 $1.63 Ask price         &
Quotes for one U.K. pound:          NY   London Bid price            $1.59 $1.63 Ask price            $1.60 $1.64 1. What is the net profit from the locational arbitrage? 2. Which price will increase after the locational arbitrage? 3. Which price will decrease after the locational arbitrage?      Value of pound in $   $1.61 Value of MYR in $   $0.20 Value of pound in MYR   MYR8.10 1. Which currency is overpriced? 2. What is the net profit from the triangular arbitrage? 3. Which price(s)...
Assume the following rate quotes on the British Pound: Orleans Bank- Bid $1.46 Ask $1,47, Kansas...
Assume the following rate quotes on the British Pound: Orleans Bank- Bid $1.46 Ask $1,47, Kansas Bank-Bid $1,48 Ask $1,49, Is there an arbitrage here? If so, what happens to markets as a result?
You observed the bid rate of the New Zealand dollar is $.3232 while the ask rate...
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?
Assume the following exchange rates: Quoted Price Value of Canadian dollar in U.S. dollars $.94 Value...
Assume the following exchange rates: Quoted Price Value of Canadian dollar in U.S. dollars $.94 Value of New Zealand dollar in U.S. dollars $.30 Value of Canadian dollar in New Zealand dollars NZ$3.10 The actual cross rate between Canadian dollar and New Zealand dollar is _______, and the implied (calculated) cross rate between Canadian dollar and New Zealand dollar is __________. A. NZ$3.10; NZ$3.13 B. NZ$3.13; NZ$3.15 C. NZ$3.10; NZ$3.15 D. NZ$3.13; NZ$0.313
Triangular Arbitrage As of Sunday, October 27th, 2019, 02:50 pm (GMT) the following quotes apply. Currency...
Triangular Arbitrage As of Sunday, October 27th, 2019, 02:50 pm (GMT) the following quotes apply. Currency quote Value of Canadian dollar in U.S. dollars 0.7657 Value of New Zealand dollar in U.S. dollars 0.6349 Value of Canadian dollar in New Zealand dollars 1.2298 Question: Given the information above, is “triangular arbitrage” possible? Why? Or Why not? If it is possible, explain the steps that would reflect the “triangular arbitrage” process and compute the potential profit from this strategy if you...
What will happen if the following exchange rates (involving the Australian dollar, the New Zealand dollar...
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?
(2pts)Which of the following is not mentioned in the lecture note as an additional risk factor...
(2pts)Which of the following is not mentioned in the lecture note as an additional risk factor resulting from international business? exchange rate fluctuations political risk interest rate risk None of the above (2pts) Factor income from international investment is a component of financial account in the balance of payments True                                   b) False (2pts) Bid-Ask spread on currency quotation will be wider if the currency exhibits more volatility than others because of the country’s uncertain economic conditions True                                   b) False (2pts)...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT