Q1:

Suppose the following bilateral spot exchange rates are being quoted for the Danish krone (DKK), the US dollar (US$) and the euro ():

US$/ = 1.5

DKK/ = 7.0

DKK/$ = 5.0

If you start with 100, the most you could end up with in a single round of triangular arbitrage would be?

Q2:

You observe the following exchange rates:

Actual Exchange Rate

Bank A S$/RM 0.50

Bank B S$/pound 2.40

Bank C RM/pound 5.50

Explain how arbitrage can be performed using S$1,000,000. How much is the profit from the arbitrage activity?