Currency Pair	Commonwealth Bank	ANZ Bank	NAB	Westpac
AUD/USD	0.6558/0.6574	0.6289/0.6299	0.61397/0.64599	0.6056/0.6541
AUD/JPY	98.65/98.51	94.062/94.156	91.7899/96.6043	90.58/97.85
AUD/EUR	0.6244/0.6259	0.5988/0.5994	0.58409/0.61482	0.6049/0.6288
AUD/GBP	0.5405/0.5418	0.5187/0.5192	0.50567/0.53231	0.4990/0.5392
AUD/CAD	0.8971/0.8992	0.8598/0.8607	0.83837/0.88230	0.8269/0.8932

By seeing the above foreign exchange rates, respond to the following questions

2. Assume the following cost structure:

i) No transaction costs.

ii) A flat fee of AUD 20 is charged by each bank.

iii) Fee of {AUD 10 + 0.35% [Amount transacted - AUD 1,000]}.

2.a) Is there an arbitrage opportunity? If yes, explain. If no, explain.

2.b) If there is one (or more), then how large the transaction amount needs to be? Dis[1]cuss the role played by the transaction costs.

Answer rating: 100% (QA)

To determine if theres an arbitrage opportunity and the required transaction amount we need to compare the exchange rates at different banks consideri... View the full answer