The U.S. dollar spot exchange rate with the Australian dollar is $1 = AU$1.2697. The U.S. dollar

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The U.S. dollar spot exchange rate with the Australian dollar is $1 = AU$1.2697. The U.S. dollar and euro exchange rate is $1 = €0.7559. If the cross rate between the euro and Australian dollar is €1 = AU$1.598 then show that an arbitrage is possible. What positions should be taken to profit from the mispricing?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
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Finance Applications and Theory

ISBN: 978-0077861681

3rd edition

Authors: Marcia Cornett, Troy Adair

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