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Figure out the correct cross exchange rate

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1) The Singapore dollar-U.S. dollar (S$/$) spot exchange rate is S$3/$, the Canadian dollar-U.S. dollar (CD/$) spot rate is CD5/$, and the Singapore dollar-Canadian dollar spot exchange rate is S$ 0.50/CD.

a) Figure out the correct cross exchange rate for Singapore dollar against Canadian dollar (S$/CD) that eliminates a triangular arbitrage.

b) Consider your possible actions to exploit the triangular arbitrage profit when you have $10 mil.

i) Determine which currency you sell. Canadian dollar or Singapore dollar?

ii) How much Canadian dollar do you want to buy or sell?

iii) Figure out your potential profit in U.S. dollars. Show your work.

Reference no: EM132674708

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