The following rates are given:
1 euro = 1.90 Australian dollars (AUD)
1 euro = 1.90 Swiss francs (CHF)
1 AUD = 0.97 CHF
If you have 100 000 Australian dollars available,how much profit can you earn using the triangle arbitrage?

Question

Quizplus · Accepted Answer

First, convert the 100,000 AUD to Euros using the given exchange rate:
100,000 AUD x (1 Euro / 1.90 AUD) = 52,631.58 EUR

Next, use the triangle arbitrage formula to find the potential profit:

52,631.58 EUR x (1.90 CHF / 1 Euro) x (0.97 CHF / 1 AUD) x (1 Euro / 1.90 AUD) - 52,631.58 EUR = 1,461.96 EUR

Finally, convert the profit back to AUD using the exchange rate:
1,461.96 EUR x (1 AUD / 1.90 EUR) = 769.46 AUD

Therefore, the best choice is C because the potential profit is A$3093.

The Following Rates Are Given