Question

1. Use the following information to answer the following 3 questions

Direct Market for C$/INR                                   Bids                       asks

Deutsche Bank’s quote:                               C$.0855/INR       C$.0865/INR

Barclays’ quote:                                             C$.0857/INR       C$.0864/INR

CSFB’s quote:                                                  C$.0860/INR     C$.0871/INR

Markets for INR/$ and C$/$

                                                                    dollar bids           dollar asks           dollar bids               dollar asks

Deutsche Bank’s quote:                        INR 13.04/$        INR 13.36/$        C$1.125/$        C$1.131/$  

Barclays’ quote:                                     INR 13.11/$        INR 13.52/$        C$1.126/$         C$1.130/$

CSFB’s quote:                                          INR 13.22/$        INR 13.35/$        C$1.123/$        C$1.134/$

1. What is the best direct C$/INR ask price? Compute the best indirect C$/INR bid price.    (These are the clockwise numbers)

2. What is the best direct C$/INR bid? Compute the best indirect C$/INR ask price. (These are the counter-clockwise numbers)

3. Determine if there is a triangular arbitrage opportunity. (Look clockwise and counter-clockwise) If there is an arbitrage opportunity, do it! How much risk-free arbitrage profit is there if you start with $1,000,000 and make one trip around the triangle?

Answer 1

A)

Direct C$/INR ask rate is follows:

Deutsche bank	C$0.0865/INR
Barclay's quote	C$/0.0864/INR
CSFB's qoute	C$/0.0871/INR

Indirect C$/INR is as follows:

Deutsche bank	1.125/13.04=C$0.0863/INR
Barclay's quote	1.126/13.11=C$0.0859/INR
CSFB's qoute	1.123/13.22=C$0.0849/INR

B)

Direct C$/INR ask rate is follows:

Deutsche bank	C$0.0855/INR
Barclay's quote	C$/0.0857/INR
CSFB's qoute	C$/0.0860/INR

Indirect C$/INR is as follows:

Deutsche bank	1.131/13.36=C$0.0847/INR
Barclay's quote	1.130/13.52=C$0.0836/INR
CSFB's qoute	1.134/13.35=C$0.0849/INR

c)

Arbitrage opportunity

There is no arbitrage gains in all three banks with $1,000,000,

The arbitrage gains arise if be have C$ currency becuase they have a  difference in between direct quotes and indirect quotes.