Your company has $3,000,000 that can be used for triangular arbitrage. You observe the following exchange rates:

You can sell dollars for 0.888 euros per dollar and buy dollars for 0.896 euros per dollars.

 

You can sell Australian dollars (A$) for $.73 and buy Australian dollars for $.75.

 

You can sell Australian dollars (A$) for 0.68 euros per A$ and buy Australian dollars (A$) for 0.70 euros per A$.

a. What profits can you earn from triangular arbitrage?

b. One of the colleagues in the company is concerned about your plan to use triangular arbitrage like this, calling it a "risky scheme" that could backfire and hurt the profitability of the company. Is your colleague correct? Explain why or why not.

Answer rating: 100% (QA)

To determine the potential profits from triangular arbitrage we need to identify an arbitrage opportunity by exploiting exchange rate inconsistencies ... View the full answer