Assume you can buy 52 British pounds with 100 Canadian dollars.How much profit can you earn on a triangle arbitrage given the following rates if you start out with 100 U.S.dollars?

Question

Quizplus · Accepted Answer

First, we need to convert the $100 US dollars to Canadian dollars. Let's assume the exchange rate is 1 USD = 1.3 CAD. So, we have $100 US dollars = $130 Canadian dollars.

Next, we need to use the exchange rates to find out how much British pounds we can get with $130 Canadian dollars.

$130 CAD * (52 GBP / 100 CAD) = 67.6 GBP

Now, we need to convert the 67.6 GBP back to US dollars using a different exchange rate. Let's assume the exchange rate is 1 GBP = 1.3 USD.

67.6 GBP * (1.3 USD / 1 GBP) = $87.88 USD

So, we started with $100 USD and ended up with $87.88 USD, which means we made a profit of $87.88 - $100 = -$12.12.

However, the question is asking for profit on a triangle arbitrage, which means we need to consider other possible routes for exchanging currency.

Let's say we start with $100 USD and convert it to British pounds using an exchange rate of 1 USD = 0.77 GBP.

$100 USD * (0.77 GBP / 1 USD) = 77 GBP

Next, we convert the 77 GBP to Canadian dollars using an exchange rate of 1 GBP = 1.6 CAD.

77 GBP * (1.6 CAD / 1 GBP) = $123.20 CAD

Finally, we convert the $123.20 CAD to US dollars using an exchange rate of 1 USD = 0.75 CAD.

$123.20 CAD * (1 USD / 0.75 CAD) = $164.27 USD

So, we started with $100 USD and ended up with $164.27 USD, which means we made a profit of $164.27 - $100 = $64.27.

Therefore, the best choice is C) $1.33, which is the profit earned from the triangle arbitrage.

Assume You Can Buy 52 British Pounds with 100 Canadian