Which of the following steps would you take to make a triangular arbitrage strategy? Note: the steps do not need to be in order. Tick all the steps that apply. A small penalty will be applied for each incorrect answer that is ticked. Sell AUD buy NZD Sell EUR buy AUD Sell AUD buy EUR Sell NZD buy EUR Sell NZD buy AUD There is no arbitrage opportunity in this case Sell EUR buy NZD
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You observe the following exchange rates at three different banks for the Australian dollar, Euro and New Zealand Dollar.
X bank AUD 1.6650/EUR
Y bank AUD 0.9213/NZD
Z bank NZD 1.8955/EUR
Assume you have AUD 1,000,000. Which of the following steps would you take to make a triangular arbitrage strategy?
Note: the steps do not need to be in order. Tick all the steps that apply. A small penalty will be applied for each incorrect answer that is ticked.
Sell AUD buy NZD
Sell EUR buy AUD
Sell AUD buy EUR
Sell NZD buy EUR
Sell NZD buy AUD
There is no arbitrage opportunity in this case
Sell EUR buy NZD
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Solved in 3 steps
- Suppose the exchange rate between U.S. dollars and British Pounds is $1.00 = 1.70 Pounds and the exchange rate between the U.S. dollar and the Euro is $1.00 = 1.24 Euros. What is the direct quote cross rate of one Pound to the euro? (How many Euros will one Pound purchase?) Instruction: Type your answer in euros, and round to two decimal places.Suppose you have the following spot exchange rates: USD/AUD 0.5300 AUD/EUR 1.6428 USD/EUR 0.8782 a) Calculate the US dollar profit (per 1 USD), if any, on a three-point arbitrage. b) Calculate AUD profit (per 1 AUD), if any, on a three-point arbitrage. c) How can you explain the answers in (1) and (2)?The following exchange rates are available to you. (You can buy or sell at the stated rates.) Mt Fuji Bank ¥120.00/A$ Mt Rushmore Bank SF1.6000/A$ Mt Blanc Bank ¥80.00/SF Assume that you have SF10, 000,000. Can you make a profit via triangular arbitrage? If so, show the steps that you will follow and calculate the amount of profit in Swiss francs.
- e) Suppose that the current spot exchange is: 1 BP (British pound) = $1.21. Use the following interest rates.The interest rate is 8% in the US market (home market).The interest rate is 3% in the UK market (foreign market).i) Find the forward exchange rate when the IRP holds.ii) Assume that the IRP holds (this means you use the IRP forward exchange rate found above). When you invest $10,000 in the UK market and at the same time, enter a currency forward contract to sell BP in a year under the assumption that the IRP holds, show that the return from your foreign investment is equal to the return that can be achieved from the US market (home market).iii) If the forward exchange rate is 1 euro = $1.23 (the IRP does not hold), from what market will you have more investment return (%)? Show your work. PLEASE SHOW STEPSfrom those three foreign currencies note down the exchange ratebetween each couple of them. 1 USD = 1.27126 CAD 1 USD = 5.65108 BRL 1 CAD = 4.44525 BRL Select any three foreign currencies and note down the exchange ratebetween each couple of them.2) Calculate the cross rate between each couple of currencies.3) Explain in details the different stages to create a triangular arbitrage acrossthose currencies.4) Discuss the advantages of triangular arbitrage in international investmentactivitySuppose that the current spot exchange is: 1 BP (British pound) = $1.21. Use the following interest rates.The interest rate is 8% in the US market (home market).The interest rate is 3% in the UK market (foreign market). i) Find the forward exchange rate when the IRP holds. ii) Assume that the IRP holds (this means you use the IRP forward exchange rate found above). When you invest $10,000 in the UK market and at the same time, enter a currency forward contract to sell BP in a year under the assumption that the IRP holds, show that the return from your foreign investment is equal to the return that can be achieved from the US market (home market). iii) If the forward exchange rate is 1 euro = $1.23 (the IRP does not hold), from what market will you have more investment return (%)? Show your work.
- Suppose that in the Moscow interbank market one ruble corresponds to 0.0135 euros and 1.5 yen, while in the Tokyo interbank market 100 yen equals 0.8 euros. Consider whether there is a possibility of Triangular Arbitrage.2. Assume the following exchange rates: Currencies MXN/USD MXN/JPY JPY/USD Is triangular arbitrage possible? If so, how much is your profit in USD if you start with $1,000,000? Exchange Rate 0.0470 5.2300 0.0088Suppose exchange rate of Japanese yen in US $ is $.010, exchange rate of euro in US $ is $1.34, and exchange rate of euro in Japanese yen is 139 yen and you have $100, 000 to invest. By looking the exchange rates, do you see triangular arbitrage opportunity? What is your profit or loss? Show the work to support your answer.
- Assume the following exchange rates: Currencies Exchange Rate MXN/USD 0.0470 MXN/JPY 5.2300 JPY/USD 0.0088 Is triangular arbitrage possible? If so, how much is your profit in USD if you start with $1,000,000?Suppose the following exchange rate quotations are available: Citibank quotes U.S. dollars per Euro: $1.2223/€Barclays Bank quotes U.S. dollars per pound sterling: $1.8410/£ Dresdner Bank quotes Euros per pound sterling: €1.5100/£ You are a market trader with $1,000,000. Will you be able to make an arbitrage profit using these quotes? If yes, why? What will be the profit? Show your calculations.e) Suppose that the current spot exchange is: 1 BP (British pound) = $1.21. Use the following interest rates. The interest rate is 8% in the US market (home market). The interest rate is 3% in the UK market (foreign market). i) Find the forward exchange rate when the IRP holds.