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You are given the following information. What is the arbitrage profit if you have £1,000,000 to...

You are given the following information. What is the arbitrage profit if you have £1,000,000 to use? (£ = British Pound; ZAR = South Africa Rand; DKK = Danish Krone)

S(ZAR/GBP) 21.1305
S(DKK/GBP) 8.7171
S(DKK/ZAR) 0.3785

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Expert Solution

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ZAR/GBP = ZAR 21.1305/GBP

DKK/GBP= DKK 8.7171/GBP

DKK/ZAR= DKK0.3785/ZAR

I have GBP 1000000 covert it into DKK = 1000000 *8.7171= DKK 8,717,100

Convet DKK 8717100 into ZAR =DKK 8717100/ . 3785= ZAR 23,030,647.29

Conver ZAR 23,030,647.29 into Pound = ZAR 23,030,647.29/21.1305= GBP 1,089,924.38

Hence arbitrage profit =GBP 1,000,000-GBP 1,089,924.38= GBP 89,924.38

jeff jeffy answered 2 years ago
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