Question
In: Finance
The New Zealand dollar to U.S. dollar exchange rate is 1.34 , and the British pound...
The New Zealand dollar to U.S. dollar exchange rate is 1.34 , and the British pound to U.S. dollar exchange rate is .63. If you find that the British pound to New Zealand dollar were trading at .51 , what would be the riskless profit per U.S. dollar invested?
Solutions
Expert Solution
1 USD=1.34 NZD
1 USD=0.63 GBP
1 NZD=0.51 GBP
Start with 1 USD
Convert to 1.34 NZD
Convert NZD to GBP =1.34*0.51=0.68 GBP
Convert GBP back to USD=0.68/0.63=1.08 USD
Profit per US dollar invested is 0.08 US dollar
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