Assume the following information: USD/AUD, bid/ask: 0.7 / 0.75 USD/MXP, bid/ask: 0.074 / 0.076 MXP/AUD, bid/ask:...

Assume the following information:

USD/AUD, bid/ask: 0.7 / 0.75

USD/MXP, bid/ask: 0.074 / 0.076

MXP/AUD, bid/ask: 8.13 / 8.32

Assume you have 1 million USD to conduct one cycle of triangular arbitrage. What will be your profit from implementing this strategy? Remember to pay careful attention whether you're trading at the bid or the ask with the bank.

Expert Solution

This is the cross currency arbitrage and calculation of profit by implementing the strategy;

Amount	10,00,000

First Currency	USD
Second Currency	AUD
Third Currency	MXP

Market A	BID	ASK
USD/AUD	0.700	0.750
MXP/AUD	8.130	8.320
USD/MXP	0.084	0.092

Market B	BID	ASK
USD/MXP	0.074	0.076
MXP/USD	13.514	13.158

Arbitrage opportunity

Buy 74000 x MXP from A @ 0.6016 AUD
Buy 1000000 x USD from B @ 0.740 MXP
Sell 1000000 x USD to A @ 0.75 AUD

PROFIT	1,48,380	AUD

jeff jeffy answered 2 years ago

Use the following forward bid-ask, and interest rates for of AUD and USD, Spot rate in...

Use the following forward bid-ask, and interest rates for of AUD and USD, Spot rate in AUD/USD: 1.2010-16 180-day forward rate in AUD/USD: 1.2231-39 The annual interest rates for AUD (lending or borrowing): 4%, 5%; for USD: 2%, 3% Assume a year has 360 days, to answer: Find the mid rates of these rates and use PPP to explain if: the 180 days forward rate > expected 180 days spot rate an investor can make profit by investing or borrowing...

Orchard Bank gives the following quotes of the USD, Bid Ask IDR/USD 14430 14450 SGD/USD 1.3935...

Orchard Bank gives the following quotes of the USD, Bid Ask IDR/USD 14430 14450 SGD/USD 1.3935 1.3945 (A) What are the synthetic IDR/SGD bid-ask quotes? (B) If Asia Bank quotes IDR/SGD at 10320-10420, where is it cheaper to buy IDR with SGD? Are there any arbitrage opportunities?

Suppose you receive the following quotes from a dealer. The bid and ask prices for USD...

Suppose you receive the following quotes from a dealer. The bid and ask prices for USD are MYR4.15 and MYR4.18, respectively. The same dealer also quotes the bid and ask prices for GBP to be at MYR5.10 and MYR5.15. Given the following quotes, calculate the USD cost of obtaining GBP10,000. A. $8,058 B. $8,196 C. $12,200 D. $12,410 Suppose you get the following exchange rate quotes: MYR4.4365/USD, MYR3.34/AUD, and USD0.74/AUD. Determine the triangular arbitrage profit that is possible if you...

1) At Bank X, the bid rate of a NZD is USD 0.630 and the ask...

1) At Bank X, the bid rate of a NZD is USD 0.630 and the ask rate is USD 0.635. However, at Bank Y, the bid rate of the NZD is USD 0.628 and the ask rate is USD 0.631. What would be your profit if you use USD 1,000,000 and try to execute locational arbitrage? A) + USD 11,146.50 B) + USD 1,587.30 C) - USD 1,584.79 D) - USD 11,023.62 2) At Bank X, the bid rate of...

Bid and Ask quotes for the USD priced in EUR and for the Norwegian Krone (NOK) priced in USD are given as follows:

Bid and Ask quotes for the USD priced in EUR and for the Norwegian Krone (NOK) priced in USD are given as follows:EUR 0.8478 0.8525/USDUSD 0.1250-0.1310/NOKCalculate the bid and ask cross rates for the NOK priced in EUR terms: S (EUR/bid NOK) and S (EUR/ask NOK).

Suppose your bank quotes you an ask price of USD 2.50 / GBP anda bid...

Suppose your bank quotes you an ask price of USD 2.50 / GBP and a bid price of USD 2.00 / GBP. If you buy USD 5,000 worth of GBP and immediately sell them back, how many USD do you have left after both transactions?

You observed that JPM has bid-ask spread of $1.3655 - $1.3665 for USD/POUND, and Bank of...

You observed that JPM has bid-ask spread of $1.3655 - $1.3665 for USD/POUND, and Bank of Austria with bid-ask spread of $1.1285 - $1.1295 for USD/EUR. YOu also saw that Barclay has a bid-ask spread of 0.8225 - 0.8235 for POUND/USD. You have access to $20,000,000 line of credits. Show how you can arbitrage to make money of this.

Bid/Ask on Aussie Dollar Forward. Use the following spot and forward bid-ask rates for the U.S....

Bid/Ask on Aussie Dollar Forward. Use the following spot and forward bid-ask rates for the U.S. dollar/Australian dollar (US$=A$1.00) exchange rate from December 10, 2010, to answer the following questions: a. What is the midrate for each maturity? b. What is the annual forward premium for all maturities? c. Which maturities have the smallest and largest forward premiums? (Click on the icon to import the table into a spreadsheet.) Period Bid Rate Ask Rate spot 0.98490 0.98512 1 month...

Spot rate USD/AUD 1.56. Assume annual interest rate is 3% in USA and 5% in Australi...

Spot rate USD/AUD 1.56. Assume annual interest rate is 3% in USA and 5% in Australi What should be the one-year forward rate USD/AUD per interest rate parity condition? Show that there is no arbitrage opportunity based on the forward rate that you computed. Compute arbitrage profit if one-year forward rate is USD/AUD 1.60. Pick any initial borrowing amount of your choice.

6. A) You observe the following quotes for the USD/AUD in the spot market from two...

6. A) You observe the following quotes for the USD/AUD in the spot market from two banks: Bank of Sydney Bank of New York Bid Ask Bid Ask 0.71711 0.71715 0.71708 0.71715 Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use AUD 25,000. If not, explain why arbitrage is not possible? B) You observe the following quotes for the GBP /AUD in the...

Question