the bid-ask quotes for the U.S.dollow, birthish pound, and swiss france are: :sf: 1.6500 - 10 Pound: : 1.2000 - 10 pund: sf: 2.0000 - 10 The potential arbitrage profits (not losses) from an initial position of $1 million are closet to: a: 0 b 8649 c 10495 Re: study session 4, Schweser notes 2 page 78 I am very confused with when to use the bid and when to use the ask while converting currency, what does up the bid, down the ask mean? Can anybody help me understanding the triangle in page 81 answer part? Thanks in advance
two ways to go: dollar->sf->pound-> ->SF you need to multiply. Use smaller number 1000000*1.65=1650000 sfr SF->Pound->need to divide->use larger number 1650000/2.0010=824587.71 pound Pound->Dollar->need to multiply, use smaller number 824587.71 * 1.2 = 989505$ results in a loss. so try 2nd route: -\>pound-\>sfr-\> -\>pound, divide, use larger 1000000/1.2010 = 832639.47 pound pound-\>sfr multiply, use smaller = 832639.47 \* 2 = 1665278.93 sfr-\> divide, use larger 1665278.93/1.6510 = 1008648.66 so profit of 8649 answer b up the bid and down the ask --> multiply by smaller and divide by larger number…
1000K initially Trip-1 -> SF -> pound -> Convert to SF 1000\*1.6500 = SF1650 Convert SF to Pound SF1650/2.0010 = Pound824.5877 Convert Pound to Pound824.5877*1.2000 = 989.50524 Ah.. well. A sunk trip. Trip-2 -> pound -> SF -> Convert to Pound 1000/1.2010 = Pound832.639467 Convert Pound to SF Pound832.639467\*2.0000 = SF1665.278934 Convert SF to SF1665.278934/1.6510 = $1008.6486577 1008.6486577 - 1000 = 8.6486577K = 8648.6577 = B?