(20 marks) 4. (a) You observe the following quotes for the USDI'AUD in the spot market from two banks: Bank of Sydney Bank of New York Bid Ask Bid Ask 0.6926 0.6928 0.7030 0.7075 Do these quotes imply the possibility of earning a prot by using locational arbitrage? If so, calculate the potential prot if you are able to use AUD 25,000. If not, explain why arbitrage is not possible? (5 marks) (b) You observe the following quotes for the GBP KAUD in the spot market from two banks: Bank of Melbourne Bank or London Bid Ask Bid Ask 0.5453 0.5458 0.5407 0.5411 Do these quotes imply the possibility of earning a prot by using locational arbitrage? If so, calculate the potential profit if you are able to use GBP 50.000. If not, explain why arbitrage is not possible? (10 marks) c) You observe the following quotes for the CHF JAUD in the spot market from two banks: Bank of Australia Bank of Switzerland Bid Ask Bid Ask 0.7002 0.7095 0.7054 0.7116 Do these quotes imply the possibility of earning a prot by using locational arbitrage? If so, calculate the potential prot if you are able to use CHF 250,000. If not, explain why arbitrage is not possible? (10 marks) (25 marks) 5. Royal Bank of Canada quotes C$l = US$ 0.7265. Citibank quotes AS 1 = US$0.6980. ANZ bank quotes A$ l = C$0.9350. a. If these quotes are simultaneously observed spot rates. can you make an arbitrage prot? If so, calculate what prot would you make if you started with AS 1 million. Assume that there are no transaction costs. (10 marks) b. What would be your arbitrage prot if you were to incur the following transaction costs? (10 marks) Conversion from Transaction cost (based on value) Australian dollar to Canadian dollar 1.5% Canadian dollar to US dollar 2.0% US dollar to Australian dollar 1.0% Australian dollar to US dollar 1.0% Canadian dollar to Australian dollar 1.5% US dollar to Canadian dollar 1.5% (20 marks)