Question: (Triangular arbitrage, 1/3) You are a U.S.-based treasurer with $1,000,000 to invest. The euro-dollar exchange rate is quoted as $1.40 = 1.00 and the

(Triangular arbitrage, 1/3) You are a U.S.-based treasurer with $1,000,000 to invest. The euro-dollar exchange rate is quoted as $1.40 = 1.00 and the pound-dollar exchange rate is quoted as $1.65 = 1.00. If a bank quotes you a cross rate of 1.00 = 1.20, the intrinsic value for the cross rate is 1.00 2.3100 1.00 1.1786 1.00 1.3750 = 1.00 0.8571 1.00 0.8485

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