Suppose the GBP trades for CHF2.20279 in Zurich and USD1.62699 in London. The USD trades for CHF1.2755 in Zurich. Is there an arbitrage opportunity available for a currency trader? A) No, there is no arbitrage opportunity. B) Yes, the trader can make USD0.06147 per USD invested. C) Yes, the trader can make USD0.0930 per USD invested. D) Yes, the trader can make USD0.1827 per USD invested.
Dude, I posted the exact same thing. It’s getting weird tonight.
Banny, tell me it’s B.
B ----> 0.06147006?
I get B: (1/1.62699)*2.20279/1.2755-1
duuude, it happened, i thought i was getting somewhere, but as it would turn out i’m nowhere close.
yep… def. b
swanny, you with us? this is step 1- no bid/ask quotes. Your answer: B was correct! If the U.S. trader buys 1 GBP for $1.62699, that GBP can be converted to CHF 2.20279. The CHF 2.20279 can then be converted to 2.20279 × 1/1.2755 = USD 1.72700. The total profit is 1.727000 – 1.62699 = USD.10001. The profit per USD invested is .10001/1.62699 = 0.06147.
I get B. I was getting frustrated for awhile getting something off by a few decimals. Eventually my calculator spit out the right thing even though I didn’t change anything.
oops, little late to the game
banny will you hit us with a tri-arb question with spreads?
We need Bi[g/d]-As[s/k] spread questions!
ok, i think i’m with you now.
Donna Ackerman, CFA, is an analyst in the currency trading department at State Bank. Ackerman is training a new hire, Fred Bos, a recent college graduate with a BA in economics. Ackerman and Bos have the following information available to them: Spot Rates ------------------------------Bid Price----------Ask Price Euro/US$-------------------1.0000------------1.0015 British Pound/US$--------2.0000------------2.0100 Ackerman and Bos are interested in pursuing profitable arbitrage opportunities for State Bank. Using the appropriate bid or ask rates for the Euro/US$ and the British pound/US$, and assuming the Euro/British pound rate is 0.4000 euro/pound, what will be the profits from triangular arbitrage, starting with $1,000? A) $250. B) $1,250. C) $0. D) $243.78.
continue, and thanks guys, I feel loved.
ugly… i came up with something close to A.
okay, everybody gets the answer B. what’s the fastest way t tackle this problem? CHF / GBP = 2.20279 USD / GBP = 1.62699 CHF / USD = 1.27550 Choices present the USD profit. So going to start with USD, (CHF / USD) / (CHF / GBP) * (USD / GBP) - 1 = -0.0579103115 (oops, I lose). Do it other way: 1 / (USD / GBP) * (CHF / GBP) / (CHF / USD) = ((1 / 1.62699) * 2.20279) / 1.27550 = 1.06147006 (great. arbitrage profit)… Is this trial and error unavoidable? Is there a way for me to get it with only one calculation?