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Assume you are a trader with Deutsche Bank. From the quote screen on your computer terminal, you notice that Commerzbank is quoting 0.7777/$1.00, and Credit

Assume you are a trader with Deutsche Bank. From the quote screen on your computer terminal, you notice that Commerzbank is quoting 0.7777/$1.00, and Credit Suisse is offering SFr1.1956/$1.00. You learn that UBS is making a direct market between the Swiss franc and the euro, with a current /SFr quote of 0.6245. Show how you can make a triangular arbitrage profit by trading at these prices. Ignore bid-ask spreads for this problem. Assume you have $5,003,000 with which to conduct the arbitrage. Enter only the numeric portion of your answer without the currency symbols.

Required: a. What is the implied /SFr cross-rate derived from the dollar exchange rates quoted by Commerzbank and Credit Suisse? b-1. Describe the sequence of transactions you should undertake to earn a triangular arbitrage profit. b-2. What is your triangular arbitrage profit? c. What happens if you initially sell dollars for Swiss francs? d. What /SFr price will eliminate triangular arbitrage?

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