Foreign Exchange Mini-Case As an employee in the treasury department for a large U.S. corporation, you have gathered the following information: Quoted Spot rate of British pound () = $1.2950 Quoted Spot rate of Australian dollar (A$) = $.700 Quoted Cross exchange rate: 1 = A$1.950 One-year forward rate of A$ = $.710 One year forward rate of = $1.2876 One-year U.S. interest rate = 2.50% One-year British interest rate = 3.09% One - year Australian interest rate = 2.25% You have been asked by your boss to assess whether triangular arbitrage is feasible. If so, how could arbitrage be conducted to make a "profit on behalf of the shareholders? Also, what is the cross exchange rate where triangular arbitrage is not feasible? In an attempt to exceed the expectations of your boss, you want to also show her other possibilities for generating arbitrage profit. Since you took an international finance course at St. John's University, you know covered interest arbitrage may present an opportunity. Determine whether covered interest arbitrage is feasible and, if so, show the steps involved to make a profit on behalf of the shareholders. Foreign Exchange Mini-Case As an employee in the treasury department for a large U.S. corporation, you have gathered the following information: Quoted Spot rate of British pound () = $1.2950 Quoted Spot rate of Australian dollar (A$) = $.700 Quoted Cross exchange rate: 1 = A$1.950 One-year forward rate of A$ = $.710 One year forward rate of = $1.2876 One-year U.S. interest rate = 2.50% One-year British interest rate = 3.09% One - year Australian interest rate = 2.25% You have been asked by your boss to assess whether triangular arbitrage is feasible. If so, how could arbitrage be conducted to make a "profit on behalf of the shareholders? Also, what is the cross exchange rate where triangular arbitrage is not feasible? In an attempt to exceed the expectations of your boss, you want to also show her other possibilities for generating arbitrage profit. Since you took an international finance course at St. John's University, you know covered interest arbitrage may present an opportunity. Determine whether covered interest arbitrage is feasible and, if so, show the steps involved to make a profit on behalf of the shareholders