1. Suppose the U.S. Dollar (USD) and U.K. Pound (GBP) are trading in all geographic markets at $30 per pound, that the U.S. Dollar (USD) and Canadian Dollar (CAD) are trading in all geographic markets at $.75 per CAD, and the GBP and CAD are trading in all geographic markets at 1.9 CAD per pound.
   1. If you had $10,000 (US), how could you profit through three-point arbitrage?
      1. Specify the order of currency exchanges, the amounts of currencies you would buy, and the amount of USD you would make.
      2. Show the adjustments that would take place in the market for pounds relative to U.S. dollars, in the market for pounds relative to Canadian dollars, and in the market for Canadian dollars relative to U.S. dollars. This should include:
         1. Show initial equilibrium in each market, given exchange rates above.
         2. Show the shift in each market.
         3. Specify whether the pound appreciates or depreciates relative to the U.S. dollar, whether the pound appreciates or depreciates relative to the Canadian dollar, and whether the Canadian dollar appreciates or depreciates relative to the U.S. dollar.
2. Suppose the USD GBP exchange rate is the same as in 1, the USD CAD exchange rate is the same as in 1, but that the GBP CAD exchange rate is 1.6 CAD per pound.
   1. If you had $10,000 (US), how could you profit through three-point arbitrage? Answer i. and ii. as above for the current situation.