Question
Mary Lane is interested to work in the currency market. Recently, she has learned that she could potentially earn profit from trading multiple currencies at
Mary Lane is interested to work in the currency market. Recently, she has learned that she could potentially earn profit from trading multiple currencies at the same time. She reviews possible strategies and wants to answer the following questions.
1. She wanted to know what the triangular arbitrage and how investors could profit from the strategy.
2. If the spot exchange rates are quoted as follow:
- Exchange rate of Australian dollar in U.S. $ = $0.73
- Exchange rate of pound in U.S. $ = $1.33
- Exchange rate of pound in Australian dollar = A$1.84
Based on the information given, is there any arbitrage opportunity for Mary? If yes, what is the percentage of return if she happens to invest $100,000 today?
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