You specialize in cross-rate arbitrage. You notice the following quotes: Singapore dollar/U.S. dollar (S$/S) spot rate...
You specialize in cross-rate arbitrage. You notice the following quotes:
Singapore dollar/U.S. dollar (S$/S) spot rate = S$1.60/$
Canadian dollar/U.S. dollar (CD/$) spot rate = CD1.33/$
Singapore dollar/Canadian dollar (S$/CD) spot rate = S$1.15/CD
Ignoring transaction costs:
A) Do you have an arbitrage opportunity based on these
quotes?
B) If an arbitrage opportunity exists, what transactions would you
undertake to secure the arbitrage profit?
C) How much would your profit be if you have $1,000,000 available
for this purpose?
Homework Answers
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You specialize in cross-rate arbitrage. You notice the following
quotes:
Singapore dollar/U.S. dollar (S$/S) spot rate...
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Cross-Rate Arbitrage
0. Doug Bernard specializes in cross-rate arbitrage. He notices the following quotes. Swiss franc/dollar = SFr1.5971/$ Australian dollar/U.S. dollar = A$1.8215/$ Australian dollar/Swiss franc = A$1.1440/SFr Ignoring transaction costs, does Doug Bernard have an arbitrage opportunity based on these quotes? If there is an arbitrage opportunity, what steps would he take to make an arbitrage profit, and how much would he profit if he has $1,000,000 available for this purpose?
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