1. A hedge fund manager has $1,000,000 to invest in the foreign currency market. The dollar-euro exchange rate is quoted as $1.60/ and the dollar-pound exchange rate is quoted at $2.00/. If a bank quotes a cross rate of 1.20/, how much money can he make (in terms of dollars) via triangular arbitrage?

		0
		40,000
		41,667
		1,160,000

2. Use the following information to answer the next two questions.

Suppose you observe the following quotes in the FX market:

ACR: SF2.5/BP

$2.25/BP

SF1.25/$

Suppose you have access to 5 million USD. What is the maximum amount you can earn (in terms of USD) with one triangular transaction?

		-$555,556
		$416,000
		$625,000
		Triangular arbitrage is not possible.

3. Suppose you observe the following quotes:

$2.1/E

$1.95/BP

ACR: BP1.05/E

Find the maximum profit (in terms of USD) available to someone with access to 10 million USD at a rate of 2%.

		-$475,000
		$56,410.26
		$256,410.26
		Triangular arbitrage profit is not possible.

4.You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.20 = 1.00 and the dollar-pound exchange rate is quoted at $1.80 = 1.00. If a bank quotes you a cross rate of 1.00 = 1.50 how much money can you make via triangular arbitrage (in terms of dollars)?

		1,160,000
		0
		500,000
		250,000