Question: (Step 1 of triangular arbitrage) You are a U.S.-based treasurer with $1,000,000 to invest. The dollar- euro exchange rate is quoted as $1.205 - 1.00

(Step 1 of triangular arbitrage) You are a U.S.-based treasurer with $1,000,000 to invest. The dollar- euro exchange rate is quoted as $1.205 - 1.00 and the dollar-pound exchange rate is quoted at $1.185 - 1.00. If a bank quotes you a cross rate of 1.00 = 1.010, the intrinsic value for the cross rate is O 1.00 - 0.9834 O 1.00 = 1.5352 O 1.00 - 1.4279 O 1.00 = 1.1733 O 1.00 - 1.0169

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