Suppose that ING Bank, HSBC Bank, and BNP Paribas provide the following quotes for the Russian ruble $($RUB$)$:

$1.$ ING EUR$/$RUB $0\mathrm{.}0112-35$

$2.$ HSBC EUR$/$RUB $0\mathrm{.}0098-125$

$3.$ PNB EUR$/$RUB $0\mathrm{.}0096-110$

Questions

$(1)$ Is there an arbitrage opportunity in these quotes?

Answer:

Choose one of the following answers: A$,$ B$,$ C or D

A $=$ Between ING and HSBC

B $=$ Between ING and PNB

C $=$ Between HSBC and PNB

D $=$ There are no arbitrage opportunities

$(2)$ If there is an arbitrage opportunity in the quotes what is the profit a trader could make risk$-$free if she could borrow EUR $1$ million?

Answer:

Choose one of the following answers: A$,$ B$,$ C or D

A $=$ There are no arbitrage opportunities, so no risk$-$free profits

B $=$ EUR $18,181\mathrm{.}82$

C $=$ EUR $166,666\mathrm{.}67$

D $=$ EUR $227,272\mathrm{.}73$

$(3)$ If a trader wants to exchange EUR for RUB, which of the dealers offers the most attractive rate?

Answer:

Choose one of the following answers: A$,$ B$,$ or C

A $=$ ING

B $=$ HSBC

C $=$ PNB

$(4)$ If a trader wants to exchange RUB for EUR, which of the dealers offers the most attractive rate?

Answer:

Choose one of the following answers: A$,$ B$,$ or C

A $=$ ING

B $=$ HSBC

C $=$ PNB

$(5)$ As traders shop around or take advantage of arbitrage opportunities, what would likely happen to the ING's rates?

Answer:

Choose one of the following answers: A$,$ B$,$ or C

A $=$ Bid rate would increase, Ask rate would increase

B $=$ Bid rate would increase, Ask rate would decrease

C $=$ Bid rate would decrease, Ask rate would decrease

$(6)$ As traders shop around or take advantage of arbitrage opportunities, what would likely happen to the HSBC$\text{'}$s rates?

Answer:

Choose one of the following answers: A$,$ B$,$ or C

A $=$ Bid rate would increase, Ask rate would increase

B $=$ Bid rate would increase, Ask rate would decrease

C $=$ Bid rate would decrease, Ask rate would decrease

$(7)$ As traders shop around or take advantage of arbitrage opportunities, what would likely happen to the PNB$\text{'}$s rates?

Answer:

Choose one of the following answers: A$,$ B$,$ or C

A $=$ Bid rate would increase, Ask rate would increase

B $=$ Bid rate would increase, Ask rate would decrease

C $=$ Bid rate would decrease, Ask rate would decrease