Question

In: Finance

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?

Bid Ask
S(SEK/€) 10.4091 10.4286
S(£/€) 0.9115 0.9127
Cross-rate S(SEK/£) 11.4021 11.4042

Solutions

Expert Solution

To execute the triangular arbitrage opportunity, the following transation take place:

1. Convert € to SEK ( buy SEK with euro) to get = € 1000000 /10.4286 = 95890.14825 SEK

2.Convert SEK to £ ( buy £ with SEK ) to get £ = 95890.14825 SEK/ £ 11.4042= £ 8408.3187

3. Convert £ to € ( sell Pound for €) to get € = £ 8408.3187 * € 0.9115 = € 7664.18

Arbitrage Loss = €1000000 - € 7664.18 = € - 992335.82

jeff jeffy answered 2 years ago
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