Question: 2. Triangular Currency Arbitrage A) Given $1.5271 / in NY, $0.9250 / in Frankfurt, and 1.6645 / in London. Identify if there exists a triangular

2. Triangular Currency Arbitrage

A) Given $1.5271 / in NY, $0.9250 / in Frankfurt, and 1.6645 / in London.

Identify if there exists a triangular arbitrage opportunity. What is your strategy to achieve your profit? How much is your triangular arbitrage profit starting with $1,000,000.

B) Assuming no transaction cost,

A: You can buy a U.S. dollar for 10 pesos; The bank will pay you 9 pesos for a U.S. dollar.

B: You can buy a U.S. dollar for .9 euros; The bank will pay you .8 Euros for a U.S. dollar.

C: You can buy a euro for 14 pesos. The bank will pay you 13 pesos for a euro.

Reorganize the above into $/peso (A), $/euro (B) and euro/peso (C) and identify if triangular arbitrage is possible. What is your trading strategy? Compute the triangular arbitrage profit starting with $1,000,000.

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