Assume the exchange rates in New York for $1 are C$1

Finance Feb 16, 2021

Assume the exchange rates in New York for $1 are C$1.1382 and £.6387 while in Toronto, C$1 will buy £.5612. How much profit can you earn on $10,000 using triangle arbitrage?

Expert Solution

Computation of Profit using triangle arbitrage:

Given,

$1 = C$1.1382

$1 = £.6387

C$1 = £.5612

Coversion of dollars to C$:

Amount received = 10000 * C$1.1382 = C$11382

Now we shall convert C$ to £:

C$11382 = £.5612 * 11382 = £6387.58

We shall now convert £ to $:

$1/.6387 = £1

£6387.58 = $1/.6387 * 6387.58 = $10000.91

Profit using triangle arbutrage profit = $10000.91 - $10000 = $.91

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