Use the following information to answer the next two questions. Suppose you obse
ID: 2615519 • Letter: U
Question
Use the following information to answer the next two questions.
Suppose you observe the following quotes in the FX market:
ACR: CHF2.5/BP
$2.25/BP
CHF1.25/$
Suppose you have access to 5 million USD. What is the maximum amount you can earn (in terms of USD) with one triangular transaction? Round intermediate steps to four decimals.
416,000
-555,556
625,000
0
Which of the following would happen to eliminate the arbitrage opportunity in the previous question?
The pound will appreciate against the franc.
The franc will depreciate against the dollar.
The pound will appreciate against the dollar.
No adjustment is necessary since arbitrage was not possible.
416,000
-555,556
625,000
0
Which of the following would happen to eliminate the arbitrage opportunity in the previous question?
The pound will appreciate against the franc.
The franc will depreciate against the dollar.
The pound will appreciate against the dollar.
No adjustment is necessary since arbitrage was not possible.
O 10000Explanation / Answer
5 million USD= 6,250,000 CHF (5000000*1.25) 6250000CHF= $ 2,500,000 BP (6250000/2.5) 2500000BP= $ 5,625,000 USD (2500000*2.25) 5 million USD= 2,000,000 BP (5000000/2.25) 2000000BP= 5,000,000 CHF (2000000*2.5) 5000000CHF= 4,000,000 USD (5000000/1.25) Answer: 0 No adjustment is necessary since arbitrage was not possible. 1$=(1.25/2.5)BP 0.50 BP Direct Rate: 1$=(1/2.25)= 0.444444444 BP
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.