Given 1.25 USD/GBP, 1.10 USD/EUR, and .9000 GBP/EUR, arbitrage to earn USD. Assume you've 1m USD...
Given 1.25 USD/GBP, 1.10 USD/EUR, and .9000 GBP/EUR, arbitrage to earn USD. Assume you've 1m USD line of credit with 0% interest rate.
- A. $22,727.27
- B. $27,272.73
- C. $18,272.27
- D. $18,727.73
Homework Answers
- We have 10,00,000 USD
- Convert to EUR ie
1.1 USD = 1 EUR
1 USD = 1/1.1 EUR
10,00,000 USD = (1/1.1)*10,00,000 EUR
= 909090.91 EUR
- Convert EUR to GBP ie
.9 GBP = 1 EUR
909090.91 EUR = .9*909090.91 GBP
= 818181.82 GBP
- Convert GBP to USD ie
1.25 USD = 1 GBP
818181.82 GBP = 1.25* 818181.82 USD
= 1022727.275 USD
- Arbitrage prift = 1022727.275-1000000 = $22727.27
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