QUESTION 1

You observe the following exchange rates at three different banks for the Australian dollar, Euro and New Zealand Dollar.

X bank AUD 1.6650/EUR

Y bank AUD 0.9213/NZD

Z bank NZD 1.8955/EUR

Assume you have AUD 1,000,000. Which of the following steps would you take to make a triangular arbitrage strategy?

Note: the steps do not need to be in order. Tick all the steps that apply. A small penalty will be applied for each incorrect answer that is ticked.

		Sell AUD buy NZD
		Sell EUR buy AUD
		Sell AUD buy EUR
		Sell NZD buy EUR
		Sell NZD buy AUD
		There is no arbitrage opportunity in this case
		Sell EUR buy NZD