Suppose the spot exchange rates quoted by three banks located in three different countries are as follows:
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Question:
Suppose the spot exchange rates quoted by three banks located in three different countries are as follows: |
Bank A (Australia): 95/A$ |
Bank B (Germany): A$1.60/ |
Bank C (Japan.): 150/ |
Assume a German investor has an initial 52 million and the investor can buy or sell currencies from the banks at the above quoted rates. |
Determine the percentage return for the trader if making a profit through a triangular arbitrage strategy is possible. |
Show all calculation steps and both paths. |
[Hint: The percentage return is simply any profit divided by the initial investment. Like, if profit is $4 and investment is $100, the percentage return is $4/$100 = 4%] |
Related Book For
Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders
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