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1) Triangular Arbitrage. Suppose the following information:

Quoted Price
Value of Canadian dollar in U.S. dollars $0.90
Value of New Zealand dollar in U.S. dollars $0.30
Value of Canadian dollar in New Zealand dollars NZ$3.02

Given this information, is triangular arbitrage possible? If so, describe the steps that would reflect triangular arbitrage, and find out profit from this strategy if you had= $1,000,000 to use. What market forces would happen to eradicate any further possibilities of triangular arbitrage?

2) Covered Interest Arbitrage. Suppose the following information:

Quoted Price
Spot rate of Canadian dollar $.80
90 day forward rate of Canadian dollar $.79
90 day Canadian interest rate 4.0%
90 day U.S. interest rate 2.5%

Provided this information, what would be yield (percentage return) to the U.S. investor who utilized covered interest arbitrage? (Suppose the investor invests= $1,000,000.) What market forces would happen to eradicate any more possibilities of covered interest arbitrage?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M915286

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