two pictures attached one with question and one with hints on how to answer the question. please provide the solution with all the calculations. thank you

Chapter 4 Exercise / Triangular Arbitrage TRIANGULAR ARBITRAGE Given BID/ASK QUOTES AS FOLLOWS: BID CAD/GBP 1.68 CAD/EURO 11.43 EURO/GBP 11.13 ASK 1.70 11.45 11.15 If you had CAD$100,000, how much money can you make by doing a triangular arbitrage? Hint: Start with CAD. Do your round trip buy/sell and end with CAD. Thank you to those that emailed their confusion on the BID/ASK numbers In academic terms, recall that the BID is the price the dealer is willing to pay you, while ASK is the price the dealer wants you to pay for a currency. For example, CAD/GBP BID/ASK is 1.68/1.70. Give the dealer your GBP (sell your GBP), he will pay you CAD1.68 Ask the dealer for a GBP (buy a GBP), he will ask you to pay CAD1.70 He does this for thousands of customers in a day, easy money for him, isn't it? The confusing part in this exercise is that you have CAD 100,000 for starters and your job is to convert it to either: GBP, then to Euro, then back to CAD or to Euro, then to GBP, then back to CAD. Remember an arbitrage is to do a round trip and see if you can make any profit. Now here are some PRACTICAL TIPS: - What do I use when I "CONVERT CAD/GBP for example? Note I use the term "convert" because the buy/sell/bid/ask terms can be confusing. Why? Because when I sell the dealer buys and when I buy the dealer sells. But when I sell, I'm also buying. You see, if I sell my CAD. I'm actually buying GBP and vice versa. Confused? Me too at first! You are not alone in the confusion. So I use the term CONVERT. Let's try CONVERTING CAD/GBP, THEN GBP/EURO, THEN EURO CAD. 3 steps. First thing to determine: Is the value of CAD higher or lower than the GBP? Obviously lower because you have to spend more than a CAD$1 (CAD 1.70 in fact) to buy 1 GBP. So therefore, you can say that the GBP is only a fraction of the value of 1 CAD. Second item to determine, what is the value of CAD100,000 converted into GBP? For sure it will be less than GBP 100,000. It cannot be GBP 168.000 or GBP 170,000 because the CAD is of lesser value. So the question is, do you divide by GBP 1.70 or by GBP 1.68? Let's see what happens CAD 100,000/GBP 1.70 = GBP 58,824 CAD 100,000/GBP1.68 GBP 59,524 What do you think the dealer will give you? GBP 58,824? or GBP 59,524? Of course, GBP 58,824, the lesser number because he has to make money. In other words, you divide by the ask price which is the higher number Keep in mind that if the currency you want to convert FROM is of higher value than the currency you want to convert TO, then you multiply (not divide) by the bid price. So...do the next step. Convert what you have now. GBP 58,824 to Euro. How much Euro would you get? Then Euro back to CAD. How much is your CAD now? Did you make money? if not, then try CAD to EURO to GBP then back to CAD. How much CAD did you end up with? Which round trip makes a profit? See which of the two routes will end up with more than CAD100.000 in the CAD to GBP to Euro to CAD or CAD to Euro to GBP to CAD Have fun! end