Question
Suppose you are a currency trader at UBS with $50,000,000 funds to trade in currencies, and you observe the following rate quotations: Bank Currency Pair
Suppose you are a currency trader at UBS with $50,000,000 funds to trade in currencies, and you observe the following rate quotations:
Bank | Currency Pair | Bid | Ask |
Bank of America | $/ | 1.2124 | 1.2252 |
Barclays | $/ | 1.3248 | 1.3258 |
Citi | / | 1.1101 | 1.1123 |
a. Prove whether there exists an arbitrage opportunity or not?
b. If your answer to part a was that yes there is an arbitrage opportunity, using a timeline graph, prove and explain whether the arbitrage opportunity is profitable or not. If your answer in part a was no, then write N/A for this.
c. If your answer to part b was that the arbitrage opportunity is profitable, fully explain what trades you will undertake to realize this profit. (Please explain each transaction, mentioning the bank you will be dealing with, the rates you will get and the outcome of that transaction, making sure you indicate in which currency the outcome is in)
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