Question

The New Zealand dollar to U.S. dollar exchange rate is 1.35​, and the British pound to U.S. dollar exchange rate is 0.61. If you find that the British pound to New Zealand dollar were trading at 0.54​, what would be the riskless profit per U.S. dollar​ invested? The riskless profit is ​$

Answer 1

Answer:

 The riskless profit is $0.2 per US dollar invested.

Explanation:

New Zealand dollar to US dollar exchange rate is 1.35  

1 US dollar = 1.35 New Zealand dollars

1 New Zealand dollar = 0.54 pounds

Calculate the number of pounds that one can buy with 1.35 New Zealand dollars -

Number of pounds = 0.54 * 1.35

                                = 0.729 pounds

The number of pounds that one can buy with 1.35 New Zealand dollars is 0.729 pounds.

1 US dollar = 0.61 pounds  

1 Pound = (1/0.61) US dollars

1 Pound = $1.64

Calculate the number of US dollars that one can buy with 0.729 pounds -

Number of US dollars = 0.729 * 1.64 = $1.2  

The number of US dollars that one can buy with 0.729 pounds is $1.2

It can be seen that investing 1 US dollar and then cross conversion leads to a return of $1.2.

Riskless profit = $1.2 - $1 = $0.2

Therefore,  The riskless profit is $0.2 per US dollar invested.