Profit from Triangular Arbitrage A bank is willing to buy dollars for 0.9 euro per dollar. It is willing to sell dollars for 0.91 euro per dollar. Also consider the following information: You can sell Australian dollars (AS) to the bank for S0.72. You can buy Australian dollars from the bank for S0.74. The bank is willing to buy Australian dollars (AS) for 0.68 euro per A$0. The bank is willing to sell Australian dollars (AS) for 0.70 euro per A$0. You have $100,000. Estimate your profit or loss if you were to attempt triangular arbitrage by converting your dollars to Australian dollars, then converting your Australian dollars to euros, and then converting your euros to U.S. dollars.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 7, Problem 47QA
Textbook Problem

Profit from Triangular Arbitrage A bank is willing to buy dollars for 0.9 euro per dollar. It is willing to sell dollars for 0.91 euro per dollar. Also consider the following information:

You can sell Australian dollars (AS) to the bank for S0.72.

You can buy Australian dollars from the bank for S0.74.

The bank is willing to buy Australian dollars (AS) for 0.68 euro per A$0.

The bank is willing to sell Australian dollars (AS) for 0.70 euro per A$0.

You have $100,000. Estimate your profit or loss if you were to attempt triangular arbitrage by converting your dollars to Australian dollars, then converting your Australian dollars to euros, and then converting your euros to U.S. dollars.

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