Question

Assume the following information: 2. Quoted Price $0.93 Value of Canadian dollar in U.S. dollars Value of New Zealand dollar in U.S. dollars Value of Canadian dollar in New Zealand dollars $0.30 NZ$3.02 a) Calculate the profit from triangular arbitrage if you start with $1,000,000, show steps. b) Canadian dollar with respect to the U.S. dollar would rise, True or False? c) The value of the Canadian dollar with respect to the New Zealand dollar would decline, True or False? The value of the New Zealand dollar with respect to the U.S. dollar would fall. True or False? d)

Answer 1

Given,

Value of Canadian dollar in U.S. dollars = $ 0.93

Value of New Zealand dollar in U.S. dollars = $ 0.30

Value of Canadian dollar in New Zealand dollars = NZ$ 3.02

Solution :-

Amount to use = $ 1000000 Now, Amount in Canadian dollars - Amount Value of to use Candian dollar in U.S. dollars $1000000 $ 0.93 - C$1075268.8272 Amount in New Zealand dollars. - Amount in Canadian & Value of Canadian dollars dollar in New- --Zealand dollaos - C$1075268. & 172 X NZ$3.02 - NZ83247311.8279 Amount in U.S. dollars. = Amount in New Zealand & Value of New dollars Zealand dollar in us dollars = N2 $324 73 12.8279 x $0.30

$974193.55 So is is no the amount of $974 193.55 less than $ 1000000 which going to be used. There is Boht. There is a loss. Loss = $ 1000000 - $924193.55 = $25806.45 (6) respect True Canadian dollar with to V.S. dollar would dise. (o True. The value of Canadian dollar with respect to New Zealand dollar would decline. True. The value of New Zealand dollar with respect to us dollar would - fall. (do