Assume the following information:

Quoted Price

Value of Canadian dollar in U.S. dollars $.90

Value of New Zealand dollar in U.S. dollars $.30

Value of Canadian dollar in New Zealand dollars NZ$3.02

Given this information, is triangular arbitrage possible?If so, explain the steps that would reflect triangular arbitrage, and compute the profit from this strategy if you had $1,000,000 to use. What market forces would occur to eliminate any further possibilities of triangular arbitrage?

a)Diamond Bank expects that the Singapore dollar will depreciate against the dollar from its spot rate of $.43 to $.42 in 60 days. The following interbank lending and borrowing rates exist:

Lending Rate Borrowing Rate

U.S. dollar 7.0% 7.2%

Singapore dollar 22.0% 24.0%

Diamond Bank considers borrowing 10 million Singapore dollars in the interbank market and investing the funds in dollars for 60 days. Estimate the profits (or losses) that could be earned from this strategy. Should Diamond Bank pursue this strategy?

b)If there is 10% inflation in Brazil, 15% inflation in Argentina, and the Argentine peso weakens by 21% relative to the Brazilian real, by how much has the peso strengthened or weakened in real terms.What effect do you expect that this change in the real exchange

rate would have on trade between the two countries?