Assume the following information:

What will be the yield for an investor who has $1,000,000 available to conduct triangular arbitrage?
Exchange rate of Japanese yen in U.S.$
=$)011
Exchange rate of euro in U.S.$
=$1)40
Exchange rate of euro in Japanese yen
=140 yen
A)$100,000
B)-$90,909
C)10 percent
D)-9.09 percent

Question

Assume the following information:​
​
What will be the yield for an investor who has $1,000,000 available to conduct triangular arbitrage?
Exchange rate of Japanese yen in U.S.$
=$)011
Exchange rate of euro in U.S.$
=$1)40
Exchange rate of euro in Japanese yen
=140 yen
A)$100,000
B)-$90,909
C)10 percent
D)-9.09 percent

Quizplus · Accepted Answer

DTo determine the yield from triangular arbitrage, we follow the steps of converting currencies based on the given exchange rates and then calculate the percentage yield.1. Convert $1,000,000 to euros: $1,000,000 / 1.40 = €714,285.712. Convert €714,285.71 to Japanese yen: €714,285.71 * 140 = 100,000,000 yen3. Convert 100,000,000 yen back to U.S. dollars: 100,000,000 * 0.011 = $1,100,000The investor starts with $1,000,000 and ends up with $1,100,000, which is a $100,000 gain.To find the percentage yield:($100,000 / $1,000,000) * 100 = 10%Therefore, the yield is 10 percent (C), which is a positive yield, not a loss, so the negative percentages (D) -9.09 percent and (B) -$90,909 are incorrect interpretations of the result. The correct interpretation of the yield is a positive 10 percent gain.

Assume the Following Information:​

Assume the Following Information: