You observed the following spot quotations for dollars and euros. Bank X: $1.103

Question

You observed the following spot quotations for dollars and euros.

Bank X: $1.1033-37

Bank Y: $1.1032-38

Bank Z: $1.1029-32

Find the maximum arbitrage profit available (in terms of dollars) if you have 6 million dollars at your disposal. Round intermediate steps to four decimals and your final answer to two decimals.

543.87

4352.16

4896.18

0   

In order for the arbitrage opportunity to be eliminated, bank Z's ask price must decrease.

True

False

Triangular arbitrage opportunities occur when the actual cross rate equals the implied cross rate.

True

False

543.87

4352.16

4896.18

0   

In order for the arbitrage opportunity to be eliminated, bank Z's ask price must decrease.

True

False

Triangular arbitrage opportunities occur when the actual cross rate equals the implied cross rate.

True

False

? 543ar O 4352 16 635 points O Trae 825 peres

Explanation / Answer

We need to convert to Euros and then convert back to dollars:

Hence first option is correct

In order for the arbitrage opportunity to be eliminated, bank Z's ask price must decrease.

False
It must increase to 1.1033

Triangular arbitrage opportunities occur when the actual cross rate equals the implied cross rate.

False

It occurs when cross rate is not equal to quoted rate

USD 6000000 Bank Z rate 1.1032 Euros 5438724 Bank X rate 1.1033 Dollars 6000544 Profit 543.8724

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