Triangular Arbitrage The U.S. dollar spot exchange rate with the Australian dollar is $1 = AU$1.2697. The

Question:

Triangular Arbitrage The U.S. dollar spot exchange rate with the Australian dollar is $1 = AU$1.2697. The U.S. dollar and euro exchange rate is $1 = 0.7559. If the cross rate between the euro and Australian dollar is 1 = AU$1.598, then show that an arbitrage is possible. What positions should be taken to profit from the mispricing? (LG3)

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