Use the following information for Q1 and Q2. Take 4 decimal places in your calculations. Suppose...
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Use the following information for Q1 and Q2. Take 4 decimal places in your calculations. Suppose you are the manager of the finance department of a trading company. Your company needs to purchase and sell foreign currencies for the importing and exporting business from time to time. This morning you receive the following foreign exchange quotations from 3 brokers. Broker A: AUD1.9145 per GBP Broker B: EUR1.1661 per GBP Broker C: AUD1.6407 per EUR AUD = Australian Dollar GBP Great British Pound EUR = EURO currency Suppose your company has EUR3 million. Question 1 Determine if there is arbitrage opportunity. Explain your answer. (20 marks) Question 2 If there is arbitrage opportunity, show what steps your company should take (and the reason for taking each step) to make arbitrage profit from the quotations of the 3 brokers. Calculate the amount of arbitrage profit (in EUR) your company can make with the EUR3 million your company has. (50 marks) Use the following information for Q1 and Q2. Take 4 decimal places in your calculations. Suppose you are the manager of the finance department of a trading company. Your company needs to purchase and sell foreign currencies for the importing and exporting business from time to time. This morning you receive the following foreign exchange quotations from 3 brokers. Broker A: AUD1.9145 per GBP Broker B: EUR1.1661 per GBP Broker C: AUD1.6407 per EUR AUD = Australian Dollar GBP Great British Pound EUR = EURO currency Suppose your company has EUR3 million. Question 1 Determine if there is arbitrage opportunity. Explain your answer. (20 marks) Question 2 If there is arbitrage opportunity, show what steps your company should take (and the reason for taking each step) to make arbitrage profit from the quotations of the 3 brokers. Calculate the amount of arbitrage profit (in EUR) your company can make with the EUR3 million your company has. (50 marks)
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