You go to a bank and are given these quotes:

You can buy a Saudi Riyal (SAR) for 23.5 Indian Rupees (INR).

The bank will pay you 20.6 INR for one SAR

You can buy a U.S. dollar for 2.7 SAR

The bank will pay you 2.4 SAR for a U.S. dollar.

You can buy a Rupee for $0.015

The bank will pay you $0.011 for a Rupee

a. If you set up the triangle going from USD to SAR to INR and back to dollars, explain which exchange rates you would use.

b. If you set up the triangle going from USD to INR to SAR and back to dollars, explain which exchange rates you would use.

c. Suppose you are a U.S. bank. Can you use triangular arbitrage to generate a profit? Explain this by comparing the cross exchange rates to the one-to-one exchange rates.

d. If you can earn a profit, explain the order of the transactions that you would execute and the profit that you would earn if you started with $750,000.

e. If you can earn a profit, explain the order of the transactions that you would execute and the profit you would earn if you started with 2 million pesos.

f. Based on your answer to parts d and e, explain the forces that will make the arbitrage opportunity disappear.