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You work for the arbitrage department of a large corporation based in Frankfurt, Germany. Checking the foreign exchange rates, you see that Bank A quotes a bid of euro .8262/s and an ask of euro.8265/S and Bank B quotes a bid of euro.8258/S and an ask of euro .8261/S. You have euro 10,000,000 available. Is locational arbitrage possible? a. No, it is not possible. b. Yes, and I can make $1000.00 risk free profit. c. Yes and I can make euro 1,210.51 risk free profit. d. Yes, and I can make euro 11,210.51 risk free profit.
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Answer #1

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Home nert Page Layout Formulas Data Review View dd-Ins s Cut aCopy Σ AutoSum ー E ゴWrap Text B า 프 . Ej- a-Δ. : rーー 逻锂函Merge & Center. $ % , to: Paste Conditional Format CeInsert Delete Format Formatting as Table Styles2 Clear Sort &Find & Format Painter Clipboard TZ36 TO Alignment Number Cells Edting TP TQ TR TS TU TV TX TY TZ UA 24 25 26 27 28 29 30 31 32 BANK B BID ASK BANK A BID ASK 0.8258 0.8261 0.8262 0.8265 STEP 1 BUY EURO FROM BANK B@ $0.8261 AMOUNT RECEIVED = 10000000/0.8261 = 12105072.03 DOLLARS STEP 2SELL EURO TO BANK A $0.8262 AMOUNT RECEIVED= 12105072.03 X 0.8262= 10001210.51 EURO 1,210.51 34 35 36 37 38 39 40 PROFIT1004566- 1000000 ANSWER: 1,210.51 RISK PROFIT IN EURO ING PV, FV, ANNUITYDIR stru WACCRESI ex d 福 130% 11 1 r ri ! KE CAPM UTILITY, SH beta bond c M / future INDEX | INTL CAP BUD clean YIELD bond erences: 130 07:54 29-01-2019

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