$1.$ Problem $7\mathrm{.}04($Triangular Arbitrage$)$ Algo

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Assume the following information:

Quoted Price

Value of Canadian dollar in U$.$S$.$ dollars $$0\mathrm{.}90$

Value of New Zealand dollar in U$.$S$.$ dollars $$0\mathrm{.}30$

Value of Canadian dollar in New Zealand dollars NZ$$3\mathrm{.}02$

Explain the steps that would reflect triangular arbitrage.

One could obtain Canadian dollars with U$.$S$.$ dollars, sell the Canadian dollars for New Zealand dollars and then exchange New Zealand dollars for U$.$S$.$ dollars.

One could obtain U$.$S$.$ dollars with Canadian dollars, sell the U$.$S$.$ dollars for New Zealand dollars and then exchange New Zealand dollars for Canadian dollars.

One could obtain New Zealand dollars with U$.$S$.$ dollars, sell the New Zealand dollars for Canadian dollars and then exchange Canadian dollars for U$.$S$.$ dollars.

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Compute the profit from this strategy if you had $$2$ million to use. Do not round intermediate calculations. Round your answer to the nearest dollar.

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What market forces would occur to eliminate any further possibilities of triangular arbitrage?

The value of the Canadian dollar with respect to the U$.$S$.$ dollar would rise. The value of the Canadian dollar with respect to the New Zealand dollar would rise. The value of the New Zealand dollar with respect to the U$.$S$.$ dollar would fall.

The value of the Canadian dollar with respect to the U$.$S$.$ dollar would rise. The value of the Canadian dollar with respect to the New Zealand dollar would decline. The value of the New Zealand dollar with respect to the U$.$S$.$ dollar would fall.

The value of the New Zeland dollars with respect to the U$.$S$.$ dollar would rise. The value of the Canadian dollar with respect to the New Zeland dollar would rise. The value of the Canadian dollar with respect to the U$.$S$.$ dollar would fall.

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