The current exchange rate for Norwegian Krone NK is $1.2234/NK and the current e

Question

The current exchange rate for Norwegian Krone NK is $1.2234/NK and the current exchange rate for the South African Rand is SAR is $.8675/SAR. International investment if flowing toward South Africa due to a change in economic policies by the central government. Currently, the cross rate between the Krone and Rand is SAR 1.350931/NK, what profit opportunity exists if you start with $65,500,000? Use European or indirect quotes in your calcualtions. You must show your work in order to receive credit.

Explanation / Answer

profit can be made by buying SAR and and then use this to buy NK and selling NK for $

$65,500,000 can buy SAR = 65,500,000/0.8675

above amount wil be used to buy   NK= 65,500,000/(0.8675*1.350931)

now selling NK for $ = 65,500,000*1.2234/(0.8675*1.350931) = $ 68376541

profit = 68376541-65,500,000 = $ 2876541

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