Question

The exchange rates in New York for $1 are Can$1.1001 or £.7307. In Toronto, Can$1 will buy £.6731. How much profit can you earn on $11,000 using triangle arbitrage? Multiple Choice $154.93 O $135.87 O $139.01 $147.19 O O $183.99

Answer 1

Solution:
	Answer is 4th option $147.19
Working notes:
	To get arbitrage profit in $ we have to end our transaction cycle at $
	Given equation are
1st	$1 = Can$1.1001
2nd	$1 = £.7307
3rd	Can$1 = £.6731
Notes	Strategy is 1st Sell $11,000 and get Can$ using 1st equation , then sell Can$ and Buy £ using 3rd equation and last sell £ and get $ at last.
First	Selling $11,000 and getting Can$ using 1st equation
1st	$1 = Can$1.1001
So	$11,000 = 11,000 x Can$1.1001= Can$12,101.10
Then	We will sell these Can$12,101.10 to get £ using 3rd equation
	Can$1 = £.6731
	Can$12,101.10 = £.6731 x 12,101.10 =£8,145.250410
At last	We will sell £8,145.250410 to get $ using 2nd equation
	$1 = £.7307
	£.7307 = $1
	£1 = $(1/.7307)
	£1 = $1.368550705
So	£8,145.250410 to get $
	£8,145.25041 = $ (1.368550705 x 8,145.25041)
	£8,145.25041 = $11147.18819
Hence	At end we have $11147.18819,wee started with $11,000, definitely we makes some profit, let see.
	Arbitrage profit = Balance at End - Balance at Beginning
	Arbitrage profit = $11147.18819 - $11,000
	Arbitrage profit = $147.18819
	Arbitrage profit = $147.19
Please feel free to ask if anything about above solution in comment section of the question.