Question
The following exchange rates are quoted simultaneously in Johannesburg, Frankfurt, Singapore and Paris: Johannesburg: USD/ZAR 18.8300 Frankfurt: GBP/USD 1.2550 Singapore: ZAR/SGD 0.0725 Paris: SGD/USD 0.7255
The following exchange rates are quoted simultaneously in Johannesburg, Frankfurt, Singapore and Paris:
Johannesburg: USD/ZAR 18.8300
Frankfurt: GBP/USD 1.2550
Singapore: ZAR/SGD 0.0725
Paris: SGD/USD 0.7255
a- Calculate all the possible cross rates in the above and then indicate if there is a possibility for three-point arbitrage.
b-Suppose Jay have R1 million to perform an arbitrage trade. Also, suppose the transaction cost for executing all the arbitrage trades is R1550. If the transaction costs are included, is there still a profitable arbitrage sequence available? Prove the answer by calculating the profit (or loss) earned from arbitrage if Jay has ZAR 1 million to use.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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
Fundamental Accounting Principles Volume II
Authors: Larson Kermit, Jensen Tilly
14th Canadian Edition
978-1259066511
