Compute the best indirect bid price and ask price

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Reference no: EM131990168

Use the following information to answer the following 3 questions

Direct Market for INR/C$ Bids asks

Deutsche Bank’s quote:INR 12.25/C$INR 12.50/C$

Barclays’ quote: INR 12.15/C$INR 12.45/C$

CSFB’s quote:INR 12.30/C$INR 12.50/C$

Markets for INR/$ and C$/$

dollar bidsdollar asksCAD bidsCAD asks

Deutsche Bank’s quote:INR 15.0/$INR 15.4/$ $.805/C$$.811/C$

Barclays’ quote: INR 14.9/$INR 15.5/$$.806/C$ $.812/C$

CSFB’s quote:INR 15.1/$INR 15.3/$$.807/C$$.810/C$

1. What is the best direct INR/C$ ask price? Compute the best indirect INR/C$ bid price. (These are the clockwise numbers)

2. What is the best direct INR/C$ bid? Compute the best indirect INR/C$ ask price. (These are the counter-clockwise numbers)

3. Determine if there is a triangular arbitrage opportunity. (Look clockwise and counter-clockwise) If there is an arbitrage opportunity, do it! How much risk-free arbitrage profit is there if you start with $1,000,000 and make one trip around the triangle?

Please explain stept by step.

Reference no: EM131990168

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