
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 crossexchange 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 cooccur to eliminate the arbitrage opportunity? (5 points)
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
10,015.4310,000 = $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
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