James, an investor who is actively looking for the opportunity to gain from arbitrage. He acquires the
Question:
James, an investor who is actively looking for the opportunity to gain from arbitrage. He acquires the following quotes from three different banks. Bank A is willing to buy or sell Japanese yen at an exchange rate of 113 yen per dollar. Bank B is willing to buy or sell the Argentine peso at an exchange rate of $0.40 per peso. Bank C is willing to exchange Japanese yen at an exchange rate of 1 Argentine peso for 42 yen.
a. Show how James can make a profit from triangular arbitrage?
b) What is James's profit/loss would be if he had $2,000,000?
c) As investors engage in triangular arbitrage, explain how their activities influence each of the exchange rates until triangular arbitrage is no longer feasible.
Canadian Income Taxation planning and decision making
ISBN: 9781259094330
17th edition 2014-2015 version
Authors: Joan Kitunen, William Buckwold