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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

jeff jeffy answered 2 years ago
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