Question 1: The exchange rates in New York are: $1 = AUD 1.113 and $1 =...

Question 1:

The exchange rates in New York are: $1 = AUD 1.113 and $1 = £0.658

A dealer is offering a quote: AUD 1 = £0.7617.

What is the profit you can earn on $24,541 using triangle arbitrage?

Question 2:

You are given the following quotes:

U.S. dollar/Brazilian Real = 0.3027

U.S. dollar/Australian Dollar = 0.7643

U.S dollar/Chinese Yuan = 0.1434

What is the Brazilian Real/Chinese Yuan cross rate?

Solutions

Expert Solution

Answer to Question 1:

USD > AUD > Pound > USD
USD	AUD	Pound	USD
$24,541	$27,314.133	£20,805.18	$31,618.81

$1 = AUD 1.113 and $1 = £0.658
dealer is offering a quote: AUD 1 = £0.7617.

Convert USD To AUD = 24541*1.113			27314.133
Convert this AUD to Pound = 0.7617X27314.133			20805.17511
Re-convert this 20805.17511 pounds
to USD @ $1 = £0.658, = 20805.17511 / 0.658			31618.80715
	Less : amount invested		$24,541
	Profit from arbitrage		$7,078

Answer to Question 2:

First
Convert U.S. dollar/Brazilian Real = 0.3027 to Brazilian Real / U.S. dollar = 1/0.3027 =					3.303600925
It is given that U.S dollar/Chinese Yuan = 0.1434
Brazilian Real/Chinese Yuan cross rate =
(Brazilian Real / U.S. dollar) X (U.S dollar/Chinese Yuan) = 3.30360092500826 X 0.1434=					0.473736373

Brazilian Real/Chinese Yuan = 0.473736373

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Thank you,…

jeff jeffy answered 1 year ago

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