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You are a trader in Tokyo in Japan and observe the following quotes on the trading...

You are a trader in Tokyo in Japan and observe the following quotes on the trading screen for the Japanese Yen (JPY), Australian dollar (AUD), and US dollar (USD):

AUD per USD (AUD/USD) 1.3618 – 1.3762

JPY per AUD (JPY/AUD) 77.95 – 78.78

JPY per USD (JPY/USD) 105.29 – 105.82

Suppose that you have 200,000 JPY in your trading account and interest rates are 0. Identify all positive arbitrage opportunities by using these quotes. Final answers in JPY.

Solutions

Expert Solution

An arbitrage profit can be earned with these steps :

  • Convert JPY200,000 into USD. The rate applied is the ask rate because we are selling JPY and buying USD. USD received = 200,000 / 105.82 = USD1890
  • Convert USD1890 into AUD. The rate applied is the bid rate because we are selling USD and buying AUD. AUD received = 1,890 * 1.3618 = USD2,573.80
  • Convert AUD into JPY. The rate applied is the bid rate because we are selling AUD and buying JPY.  JPY received = 2,573.80 * 77.95 =  JPY200,628.07
  • Arbitrage profit = 200,628.07 - 200,000 = JPY628.07

jeff jeffy answered 2 years ago
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