How you can make a triangular arbitrage profit

Assignment Help Finance Basics

Reference no: EM131939862

Question: Assume you are a trader with Deutsche Bank. From the quote screen on your computer terminal, you notice that Dresdner Bank is quoting €0.7309/$1.00 and Credit Suisse is offering SF0.9731/$1.00. You learn that UBS is making a direct market between the Swiss franc and the Euro, with a current €/SF quote of 0.73.

a. Show how you can make a triangular arbitrage profit by trading at these prices. (Ignore bid-ask spreads for this problem.) Assume you have $5,000,000 with which to conduct the arbitrage.

b. What happens if you initially sell dollars for Swiss francs?

c. What €/SF price will eliminate triangular arbitrage?

Reference no: EM131939862

Questions Cloud

Find the goodwill recorded in transaction : Assume a zero tax rate for this problem. Spicer, Inc. is a private company whose 50 million outstanding common shares were estimated to have a fair value.

How given conditions will affect the value of the krank : Because your firm exports goods to Country K, your job as an international cash manager requires you to forecast the value of Country K's currency.

What are deductible travel expenses : Fatima works as a sales representative and travels frequently. What are her deductible travel expenses?

What is the effective yield to maturity : Assume a zero-coupon bond that sells for $774 will mature in 10 years at $2,200. Use Appendix B for an approximate answer but calculate your final answer.

How you can make a triangular arbitrage profit : Show how you can make a triangular arbitrage profit by trading at these prices. (Ignore bid-ask spreads for this problem.)

Corporate taxes and financial distress costs : Assume that the only market imperfections are corporate taxes and financial distress costs.

Compute how much money will you have in the account : How much money will you have in the account 15years later at age 55 if the account continues to earn 9.5% per year but you discounted making new contributions.

The capital market is perfect : CoinBase will generate a cash flow of $220M or $80M if next year the economy is in boom or recession respectively. The capital market is perfect.

What is the current two-year treasury yield : Assume the unbiased expectations theory is true. The current, 1-year Treasury yield is 4%. Suppose the market expects that the 1-year Treasury yield.

User Account

All Pages