Question

The fact that we can derive the Swiss franc/Polish zloty exchange rate, say, from the dollar/franc rate and the dollar/zloty rate follows from ruling out a potentially profitable arbitrage strategy known as triangular arbitrage. As an example, suppose that the Swiss franc price of a zloty was below the Swiss franc price of a dollar times the dollar price of a zloty, as depicted by the hypothetical data in the following table. Exchange Rate Swiss franc price of a zloty Swiss franc price of a dollar U.S. dollar price of a zloty Value 3.2 1.28 4.20 Using $100 to purchase the Polish currency directly would obtain Џ z otys Round your answer to one decimal place. Instead of buying zlotys directly, an abiager may first buy Swiss francs and then use these funds to purchase zlotys. In this case, an outlay of $100 will obtainzlotys. (Round your answer to one decimal place.) These newly obtained z o ys may then be used to purchase $Џ yielding the arbitrager a profit of $LI Round your answers to one decimal place. As tradersinvestors pursue this riskless profit opportunity, it will quickly disappear since their actions will cause the demand for Swiss francs from people who hold dollars to O A. fall, causing the Swiss franc to rise in value against the dollar. The Swiss franc would appreciate against the dollar until the price of a zloty would be exactly the same whether it was purchased directly with O B nse, causing the Swiss ranc to fal in value against the dollar. The Swiss ranc would depreciate against the dollar until the price o a zioty would be exactly the same whether it was purchased directly with ○ C. rise, causing the Swiss franc to rise in value against the dollar. The Swiss franc would appreciate against the dollar until the price of a zloty would be exactly the same whether it was purchased directly with 0 D. fall, causing the Swiss franc to fall in value against the dollar. The Swiss franc would depreciate against the dollar until the price of a zloty would be exactly the same whether it was purchased directy with dollars or indirectly through Swiss francs. dollars or indirectly through Swiss francs. dollars or indirectly through Swiss francs dollars or indirectly through Swiss francs.