Suppose you have the following spot exchange rates: USD/AUD 0.5300 AUD/EUR 1.6428 USD/EUR 0.8782 a) Calculate the US dollar profit (per 1 USD), if any, on a three-point arbitrage. b) Calculate AUD profit (per 1 AUD), if any, on a three-point arbitrage. c) How can you explain the answers in (1) and (2)?
Suppose you have the following spot exchange rates: USD/AUD 0.5300 AUD/EUR 1.6428 USD/EUR 0.8782 a) Calculate the US dollar profit (per 1 USD), if any, on a three-point arbitrage. b) Calculate AUD profit (per 1 AUD), if any, on a three-point arbitrage. c) How can you explain the answers in (1) and (2)?
Chapter9: Forecasting Exchange Rates
Section: Chapter Questions
Problem 1BIC
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Question
- Suppose you have the following spot exchange rates:
USD/AUD |
0.5300 |
AUD/EUR |
1.6428 |
USD/EUR |
0.8782 |
a) Calculate the US dollar profit (per 1 USD), if any, on a three-point arbitrage.
b) Calculate AUD profit (per 1 AUD), if any, on a three-point arbitrage.
c) How can you explain the answers in (1) and (2)?
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