a) You observe the following quotes for the USD/AUD in the spot market from two banks: Bank of Sydney Bank of New York Bid Ask Bid Ask 0.71711 0.71715 0.71708 0.71715 Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use AUD 25,000. If not, explain why arbitrage is not possible? (b) You observe the following quotes for the GBP /AUD in the spot market from two banks: Bank of Melbourne Bank of London Bid Ask Bid Ask 0.5458 0.5459 0.5514 0.5515 Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use GBP 50,000. If not, explain why arbitrage is not possible? c) You observe the following quotes for the EUR / USD in the spot market from two banks: Deutsche Bank Bank of America Bid Ask Bid Ask 1.18102 1.18102 1.18094 1.18100 Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use EUR 500,000. If not, explain why arbitrage is not possible? Please provide step by step calculations and explanation.
a) You observe the following quotes for the USD/AUD in the spot market from two banks: Bank of Sydney Bank of New York Bid Ask Bid Ask 0.71711 0.71715 0.71708 0.71715 Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use AUD 25,000. If not, explain why arbitrage is not possible? (b) You observe the following quotes for the GBP /AUD in the spot market from two banks: Bank of Melbourne Bank of London Bid Ask Bid Ask 0.5458 0.5459 0.5514 0.5515 Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use GBP 50,000. If not, explain why arbitrage is not possible? c) You observe the following quotes for the EUR / USD in the spot market from two banks: Deutsche Bank Bank of America Bid Ask Bid Ask 1.18102 1.18102 1.18094 1.18100 Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use EUR 500,000. If not, explain why arbitrage is not possible? Please provide step by step calculations and explanation.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
a) You observe the following quotes for the USD/AUD in the spot market from two banks:
| Bank of Sydney | Bank of New York |
| Bid | Ask | Bid | Ask |
| 0.71711 | 0.71715 | 0.71708 | 0.71715 |
Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use AUD 25,000. If not, explain why arbitrage is not possible?
(b) You observe the following quotes for the GBP /AUD in the spot market from two banks:
| Bank of Melbourne | Bank of London |
| Bid | Ask | Bid | Ask |
| 0.5458 | 0.5459 | 0.5514 | 0.5515 |
Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use GBP 50,000. If not, explain why arbitrage is not possible?
c) You observe the following quotes for the EUR / USD in the spot market from two banks:
| Deutsche Bank | Bank of America |
| Bid | Ask | Bid | Ask |
| 1.18102 | 1.18102 | 1.18094 | 1.18100 |
Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use EUR 500,000. If not, explain why arbitrage is not possible?
Please provide step by step calculations and explanation.
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