Suppose that you obtained the following quotes. Swiss bank is willing to buy or sell the Swiss franc (SFr) at an exchange rate of SFr1.3656 per dollar. Industrial bank is willing to buy or sell the Australian dollar (A$) at an exchange rate of A$1.5225 per dollar. Cross bank is willing to exchange Swiss franc at an exchange rate of A$1.1191 per Swiss franc.

A) Ignoring transactions cost, is triangular arbitrage possible? If so, explain the steps that you would follow to make an arbitrage profit, and compute the profit from this strategy if you had $1,000,000 to use. (3.5 marks)

B) As investors engage in triangular arbitrage, explain the effect on each of the exchange rates until triangular arbitrage would no longer be possible. (1.5 marks)