Shrewsbury Herbal Products utilizes an online platform from Thompson Reuters for its interbank operations in Europe, where GBS bank and CBS bank are currently being quoted. GBS bank offers a rate of 0.7627/$1.00, while CBS bank quotes an exchange rate of SF1.1806/$. Shrewsbury currently engages in a direct market between the Swiss franc and the euro, with a /SF quote of 0.6395.

Show how you can make a triangular arbitrage profit by trading at these prices. (Ignore bid-ask spreads for this problem.) Assume you have $5,000,000 with which to conduct the arbitrage.

What happens if you initially sell dollars for Swiss francs? What /SF price will eliminate triangular arbitrage?