Question
This is a practice question in International Finance. But I don't really understand the answer. Please write the answer in depth as possible. Question: You
This is a practice question in International Finance. But I don't really understand the answer.
Please write the answer in depth as possible.
Question:
You go to a bank and are given these quotes:
You can buy a euro for 14 pesos.
The bank will pay you 13 pesos for a euro.
You can buy a U.S. dollar for .9 euros.
The bank will pay you .8 Euros for a U.S. dollar.
You can buy a U.S. dollar for 10 pesos.
The bank will pay you 9 pesos for a U.S. dollar.
You have $1,000.
Requirements:
i. Can you use triangular arbitrage to generate a profit?
ii. If so, explain the order of the transaction that you would execute, and the profit that you would earn? (Calculate the yield of return)
iii. If you can earn profits from triangular arbitrage, explain why?
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