Question: (Ch. 7) Triangular Arbitrage. Assume the following information: St = .7 in AUDUSD St = 1.30 in GBPUSD St = 2 in GBPAUD Is triangular

(Ch. 7) Triangular Arbitrage. Assume the following information:

St = .7 in AUDUSD

St = 1.30 in GBPUSD

St = 2 in GBPAUD

Is triangular arbitrage possible? (5 points) If so, explain the steps that would reflect triangular arbitrage, and compute the profit from this strategy (expressed as a % per unit borrowed). (20 points) What market forces would occur to eliminate any further possibilities of triangular arbitrage? (8 points)

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