Question 3 Profit opportunities arise from cross rate differences between financial centres. On 9th September 2020, you noticed the following FX rates of various banks:
Question 3
Profit opportunities arise from cross rate differences between financial centres. On 9th September 2020, you noticed the following FX rates of various banks:
| Amato Bank quotes Japanese yen per Australian dollar (Yen/A$) | 82.00 |
| Sanio Bank quotes Japanese yen per SFr (Yen/SFr) | 97.00 |
| XYZ Bank quotes Swiss franc (SFr) per Australian dollar (SFr/A$) | 1.15 |
i) Is there any arbitrage opportunity? Calculate the relevant cross rate that may lead to arbitrage profit.
ii) Using a hypothetical amount of A$1,000,000 to invest, show how an investor can make arbitrage profit. [3 + 3 = 6 marks]
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Authors: William O. Cleverley
3rd Edition
0834203413, 978-0834203419
