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7. You own $10000. The dollar rate in Zurich is 2.0137 Franc/S. The Franc rate in New York is given in the table below COUNTR

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Answer #1

The Yen and Canadian Dollar rates that are given in the table are not relevant, since it is not possible to make a full chain using them. A full chain means a series of contracts using which we can start with USD and come back to USD.

An arbitrage is possible using the USD / Franc rate in Zurich and the Franc rate in the US, as follows:

Use the 10,000 USD to buy Franc @ 2.0137 and get 20,137 Franc

Use these Franc in the US market to buy USD @ 0.5139 and get 20,137 * 0.5139 = 10,348.40 USD

There is a profit of $348.40 (subject to transaction costs.)

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