Question
Three Exchange Rates are as follows: 1) US Dollars (USD) to Canadian Dollars (CAD) at CAD 1.05 to USD 1 2) CAD to Euros (EUR)
Three Exchange Rates are as follows:
1) US Dollars (USD) to Canadian Dollars (CAD) at CAD 1.05 to USD 1
2) CAD to Euros (EUR) at CAD 1.10 to EUR 1
3) EUR to USD at EUR 0.9 to USD 1
Suppose you start with USD 100,000, and do one round of "triangular arbitrage", that is convert make a total of 3 foreign exchange transactions to start from USD and return to USD. What will be your profit in USD?
(Note: Profit will be Final USD amount - $100,000. There are not transaction costs.)
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Financial Markets and Institutions
Authors: Frederic S. Mishkin, Stanley G. Eakins
5th edition
321280299, 321280296, 978-0321280299
