Question

National Bank quotes the following for the British pound and the New Zealand dollar:​ ​ Quoted Bid Price Quoted Ask Price Value of a British pound (£) in $ $1.61 $1.62 Value of a New Zealand dollar (NZ$) in $ $.55 $.56 Value of a British pound in ​ ​ New Zealand dollars NZ$2.95 NZ$2.96 Assume you have $10,000 to conduct triangular arbitrage. What is your profit from implementing this strategy?

Answer 1

Answer:

$15.43

Explanation:

To convert From USD to pound - (GBP/USD = 1.62). Pounds = 10,000/1.62= GBP 6,172.84

From GBP to NZD - (GBP/NZD = 2.95). NZD = 6,172.84 * 2.95 = NZD 18,209.88

From NZD to USD - (NZD/USD = 0.55). USD = 18,209.88 * 0.55 = USD 10,015.43

Profit is 10,015.43-10,000 = $15.43

Answer 2

Answer:

Explanation:

$10,000 to start with.

From USD to pound - (GBP/USD = 1.62). Pounds = 10,000 * (1/1.62) = GBP 6,172.84

From GBP to NZD - (GBP/NZD = 2.95). NZD = 6,172.84 * 2.95 = NZD 18,209.88

From NZD to USD - (NZD/USD = 0.55). USD = 18,209.88 * 0.55 = USD 10,015.43

$10.015.43>$10,000

Profit from implementing the strategy is 10,015.43-10,000 = $15.43