Question
The following are quotes for several U.S. currency dealers. Dealer A B C D E Japanese yen 109.03 109.06 109.04 109.08 109.06 109.10 109.05 109.07
The following are quotes for several U.S. currency dealers.
Dealer | A | B | C | D | E |
Japanese yen | 109.03 109.06 | 109.04 109.08 | 109.06 109.10 | 109.05 109.07 | 109.07 109.09 |
British pounds | 1.3115 1.3119 | 1.3118 1.3120 | 1.3115 1.3118 | 1.3116 1.3117 | 1.3115 1.3118 |
Triangular arbitrage (Inter-market) - assume that the highest bid and lowest ask for each currency are equal (so that the bid-ask spread is zero)
3. The New York spot exchange rate for Canadian dollar (USD/CAD) is 1.2146 and the spot exchange rate for the Mexican peso (USD/MXN) is 19.132. What must the spot exchange rate for the peso in Toronto (CAD/MXN) be if no arbitrage opportunity exists?
4a. Using the New York market spot exchange rates from the previous questions, if, in Toronto, the exchange rate for the peso is 14.562, what trades should you make to take advantage of the arbitrage opportunity? For each transaction, be specific about where the trade takes place, which currency you would purchase (or sell) and which currency you would use to pay (or receive)
b. How profitable is a round trip trade? State the profitability either in percent or basis points.
5a. The San Francisco spot exchange rate for the New Zealand dollar (NZD/USD) is 0.6901 and the spot exchange rate for the South African rand (USD/ZAR) is 13.344. What must the spot exchange rate for the ringgit in Wellington (NZD/ZAR) be if no arbitrage opportunity exists?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started