1. Your company has $3,000,000 that can be used for triangular arbitrage. You observe the following exchange rates:

You can sell dollars for 0.888 euros per dollar and buy dollars for 0.896 euros per dollars.

You can sell Australian dollars (A$) for $.73 and buy Australian dollars for $.75.

You can sell Australian dollars (A$) for 0.68 euros per A$ and buy Australian dollars (A$) for 0.70 euros per A$.

a. (8 points) What profits can you earn from triangular arbitrage?

b. (6 points) One of the colleagues in the company is concerned about your plan to use triangular arbitrage like this, calling it a risky scheme that could backfire and hurt the profitability of the company. Is your colleague correct? Explain why or why not.