Question

2. Assume the following information: Value of Canadian dollar in U.S. dollars Value of New Zealand dollar in U.S. dollars Value of Canadian dollar in New Zealand dollars Quoted Price $0.93 $0.30 NZ$3.02 a) Calculate the profit from triangular arbitrage if you start with $1,000,000, show steps. b) Canadian dollar with respect to the U.S. dollar would rise, True or False? c) The value of the Canadian dollar with respect to the New Zealand dollar would decline, True or False? d) The value of the New Zealand dollar with respect to the U.S. dollar would fall. True or False?

Answer 1

Value Conadian dollars in UsD 0s $ eb Vatue Nes lealand dollar in Uso O 30$ Cenadion dollan in Ve aolanddlollas 3.02 Nzs Patue a froft rom traungular arhi toge you start uh,00 0,00 0 invested i CANADA than the Spep 1- the amount will be ae to I CAD 03 O.13 kIoooooo O.93 o 7526882 CAD the mme invested in Nes 2ealand then the Srep2 amant wil be oktnsd2 IN2D O-3 $ N2D 6.3 333 3,333. 33N20 (o oo oo ON20 O3 SPreps The Comadiam anmountCon be conerted into N20 3.0LN2$ | CA D 302x lo7s 268-82 5 268&2 CAD I 3 247 311.84 N20 Prett dn trohqla anbitrage-() -Gi 3 333 333.33 3244 311-8 8602149 N20 Thin cam be Cmvasted in to UsD 6021 41 x 0.3 25806.45 SD (h

(b) Canadian dolla with respect fo us dolla uaddve Here (k <I) True as 1CAD 0 93 USD lot assiine k0.3) C) The value d Cenadian dol lo wth repect to New Zeda dolla wauld decline Tre r faloe 3.02NED ICAD K202 Which in hnare ther 1) u True (hene (D New 2ealond dol la unth respect o Us dela Tue Ttbe would ball - 00000C LP.O /N2D -3 UsD Here ko'3 whrich les thon 4her ce the &talement true, the velue Neu 2ealad dol wil fall 2: 0 0.sM A 000000 0s4 a o N 2. sWD 838 200l XSO