Question

The following exchange rates are available to you to buy or sell.

Mt. Fuji Bank	JPY120.00/USD
Mt. Rushmore Bank	CHF1.6000/USD
Mt. Blanc Bank	JPY80.00/CHF

Assume you have an initial amount of CHF10,000,000. Can you make a profit via triangular arbitrage? If so, show the steps and calculate the amount of profit in Swiss francs (CHF).

Answer 1

first let us take Japanese yen in exchange for chf from mt blanc bank

=>10,000,000 CHF * 80 per CHF

=>800,000,000 yen.

now exchange this yen for USD in mt fuji bank.

=>800,000,000 yen / 120 yen per USD

=>6,666,666.67 USD.

now exchange this USD for CHF in mt rushmore bank;

=>6,666,666.67 USD * 1.60 CHF per usd

=>CHF 10,666,666.67.

so the amount of profit will be = 10,666,666.67 -10,000,000

=>CHF 666,6666.67