Assume $1 = C$1.1098 and $1 = £.6018. Also assume you can buy £55 for C$100. How much profit can you earn using triangle arbitrage if you start out with $100?

Question

Quizplus · Accepted Answer

Starting with $100, we can use triangle arbitrage to find the profit earned in Canadian dollars (C$).

First, we convert $100 to pounds using the exchange rate of $1 = £.6018:

$100 * (1 / £.6018) = £166.17

Next, we convert pounds to Canadian dollars using the exchange rate of £1 = C$1.1098:

£166.17 * C$1.1098/£ = C$184.22

Finally, we convert the Canadian dollars back to US dollars using the exchange rate of $1 = C$1.1098:

C$184.22 * (1 / C$1.1098) = $165.80

We started with $100 and ended up with $165.80, so the profit is $65.80.

However, we need to take into account the cost of buying £55 with C$100:

£55 * C$1.1098/£ = C$61.03

So our net profit is:

$65.80 - C$61.03 = C$4.77

Converting this back to US dollars using the exchange rate of $1 = C$1.1098, we get:

C$4.77 * (1 / C$1.1098) = $4.30

Therefore, the correct answer is C) $1.43.