1 On your postgraduation celebration trip you are leaving Pa

1. On your post-graduation celebration trip you are leaving Paris for St. Petersburg, Russia. You leave Paris with 10,000 Euros in your money pouch. Wanting to exchange all of these for Russian Rubles, you obtain the following quotes: Spot rate (S/e) $1.4260/ Spot rate (Rubles/S) Rbl24.75/$ a. What is the Russian Ruble/Euro cross rate? b. How many rubles will you obtain for your Euros (assuming no bid-ask spread)? 2. Suppose the following exchange rates are quoted: Citibank $1.2223/e Barclays Bank $1.8410/£ Dresdner Bank 1.5100/E Is there a triangular arbitrage opportunity? If so, how much will you end up with if you start the arbitrage with $1,000,000? 3. Triangular Arbitrage Assume the following quotes, calculate how a market trader at Citibank with $1,000,000 can make an inter- market arbitrage profit.: Citibank quotes U.S. dollar per pound: $1.5400/E National Westminster quotes euro per pound: 1.6000/ Deutsche Bank quotes dollars per curo: $0.9700/ 4. Triangular Arbitrage Riskless profit using 10,000,000 Swiss franc. The following exchange rates are available to you. (You can buy or sell at the stated rates.) Mt. Fuji Bank Y120.00/S Mt. Rushmore Bank SF 1.6000/S Mt. Blanc Bank Y80.00/SF ds 0E English (US)

Solution

Question 1

a) We have following rates:-

Dollar / Euro = 1.4260

Rubble / Dollar = 24.75

we need rate for Rubble / Euro.

So applying Cross rate in multilication format we get,

(Dollar / Euro) * (Rubble / Dollar), so since dollar is cross so it will be cancelled against each other which will left us Rubble / Euro.

So rubble / Euro = 1.4260 * 24.75, i.e. 35.2935

So the Quotation will be as follows :- Rubble 35.2935 / Euro.

b) Since I have 10,000 Euro

and for every 1 Euro we will get 35.2935 Rubble.

So for 10,000 Euro we get = (10,000 * 35.2935) Rubble

= 352,935 Rubble.

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