Question

Assume that the following spot exchange rates exist today:

₤1 = $1.50
C$ = $.75
₤1 = C$2

Assume no transactions costs. Based on these exchange rates, can
triangular arbitrage be used to earn a profit on an initial
investment of $1,000,000? Explain. (Provide numerical support)

Answer 1

No, there is no arbitrage profitable in the above situation

because $1000000 can be used to exchange C$ 1333333.33

1333333C$ Can be used to convert into 666667.667£

and 666666.667£ is used to convert again 1000000$.

Thus there is no arbitrage profit