Question

10 points Money and foreign exchange markets in New following information is available change markets in New York Ka y e The por exchange rate One year tresury rate Expected inflation rate Yuan 7.00USS 1.50 Yuan 7.00/USS What does the Fisher Open suggest the Year b. In her Open st the currency would you prefer to US exchange rate bine d os reales for the 10 points 17. The following exchange rates are available to you. (You can buy or sell at the stated rates.) Assume you have an initial 1 million dollars. Can you make a profit via triangular arbitrage? If so, show the steps and calculate the amount of profit in dollars. Mt. Eta Bank $1.29420/GBP Mt. Blanc Bank Eurol.18413/GBP Mt. Rushmore Bank $1.0920/euro

Answer 1

Yes, there exists a profit via triangular arbitrage

Please refer to the images below for a detailed solution-

Solution Solution Yes Initial amount = 1 million dollara Given that $ 1.0920 = 1 Euro Euro 1.18413 = $1.29420= IGBP 1GBP $1.0920 = 1 Emo a Euro 1-16413= 1 GBP 1.29420 Euro e steps 0 convert $100 pnto euro 106x s curo : 1.0920 & $915750-91 Euro GBP ③ convent Ewro to abp 2 915750.91 X 1 1.18413 773353.36 GBP

& Convent GB P to dollars. $773353.86 X 1. 29420 5 $1000873.92 Portit 3 profit 1000873.98-10ooooo $873.92