Given $1,000.00, the following spot exchange rates, and assuming zero transaction costs, illustrate and explain how you could use triangular arbitrage to profit on the disequilibrium in the foreign exchange market. The price of the euro (€) in terms of U.S. dollars is $1.20. The price of the British pound (£) in U.S. dollars is $1.30, and the cross rate between the € and the £ is 0.89 pounds per euro.
Given $1,000.00, the following spot exchange rates, and assuming zero transaction costs, illustrate and explain how you could use triangular arbitrage to profit on the disequilibrium in the foreign exchange market. The price of the euro (€) in terms of U.S. dollars is $1.20. The price of the British pound (£) in U.S. dollars is $1.30, and the cross rate between the € and the £ is 0.89 pounds per euro.
Chapter28: International Trade And Finance
Section: Chapter Questions
Problem 11SQP
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Transcribed Image Text:Given $1,000.00, the following spot exchange rates, and assuming zero transaction costs,
illustrate and explain how you could use triangular arbitrage to profit on the disequilibrium in
the foreign exchange market. The price of the euro (€) in terms of U.S. dollars is $1.20. The price
of the British pound (£) in U.S. dollars is $1.30, and the cross rate between the € and the £ is 0.89
pounds per euro.
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