Question: (Ch. 7) Triangular Arbitrage. Assume the following information: St = .7 in AUDUSD St = 1.30 in GBPUSD St = 1.95 in GBPAUD (GBP is

(Ch. 7) Triangular Arbitrage. Assume the following information: St = .7 in AUDUSD St = 1.30 in GBPUSD St = 1.95 in GBPAUD (GBP is the Great British pound, and AUD is the Australian dollar.) Is triangular arbitrage possible? (5 points) If so, explain the steps reflecting triangular arbitrage and compute the profit from this strategy (expressed as a % per unit borrowed). (15 points) What market forces would occur to eliminate any further possibilities of triangular arbitrage?

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