Question

Angela has 1 million NZD and faces the following rates: EUR/USD=1.1110/12,
USD/NZD=1.4505/09, EUR/NZD= 1.6136/1.6140.
a) Can Angela make a profit by trading the three currencies? If so, how much profits in terms of NZD
can she make with her own fundsin one round? (Hint: choose the right bid or ask price for trading)
b) If all traders on the spot market behave like Angela, what would happen to the spot rates of the
three currencies and why? (Hint: the spread is usually constant on the forex market, e.g., if Euro
appreciates against US dollar, the spot rates become EUR/USD=1.1120/22)

Answer 1

Au mplin As he ureay hin Tele Solutio Angela hagto trade alt tree turen cyear γ The esk rbe) 1 . EUR/NZD: 1.6136|1哅40c-Bid(Selling) She hos to get uro this tade Broke うHere Ask tpuschake) means noted ahich can bur Bid (elling) mzans tate d hich la(an Sel L→ This indicates (Aa) 1 EUR: 1-6136 N&D 1 EUR - 1614o Nzo (Bid) The Same us all cunenc tlere ,he Song 8 puochase, toe have to look Bid fRia EUR 619, 518.69 eUR Now she hus to "hade fu Roth USD €UR/USD: 1-1110112, 옷 won 1x 619, 518.69 EUR usp 4112x 619,518.9r 688,475.84 USD

OSD) AZD 1.4505 09 x 688, 84 USp 1450 x 68, 4-15.8 Az 98,909.5 N2D d million NZD 4, 0, 008,1 20 th Pp al- behave libe th僞 in foốex maakd they wil 160 roney utde mote. dounding an t ding As poice ce eep on chang uy more eop o douh.