Qa 09. Assume that a bank has quoted the Swiss Franc at$1.07, the Australian Dollar at $0.75, and thequoted cross exchange rate of CHF/AUD is 1Franc= 1.48 Australian Dollars. Mia currently has$800,000 and wants to capitalize on a possiblearbitrage opportunity. Assume that the bid/ask isthe same in this problem.1) Does an arbitrage opportunity exist?2) If an arbitrage opportunity exists, calculateMia's gain/loss. Show all supporting work.Make sure to show all work! If you are usingGoogle Sheets or Excel, please either attachyour file to the problem or e-mail/share it. Ifyou write your answers out by hand, make sureto take a picture and attach it (or e-mail it).

Arbitrage are risk free opportunities that exist in the market and these exist in the market for…

Assume that a bank has quoted the Swiss Franc $1.07, the Australian Dollar at $0.75, and the quoted cross exchange rate of CHF/AUD is 1 Franc= 1.48 Australian Dollars. Mia currently has $800,000 and wants to capitalize on a possible arbitrage opportunity. Assume that the bid/ask is

Assume that a bank has quoted the Swiss Franc $1.07, the Australian Dollar at $0.75, and the quoted cross exchange rate of CHF/AUD is 1 Franc= 1.48 Australian Dollars. Mia currently has $800,000 and wants to capitalize on a possible arbitrage opportunity. Assume that the bid/ask is

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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Concept explainers

Instruments of Foreign Exchange Market

Foreign exchange is a worldwide market in which one nation’s currency is converted into another nation’s currency. In further terms, exchanging of nations currency with foreign currencies. Foreign exchange happens at a specified rate which is termed the foreign exchange rate. The exchange rates are not constant continuously changing as they are derived by market forces of supply and demand. Widely used foreign currencies are the United States- dollar, Euro, Japanese Yen, British pound, and Australian dollar. US- dollar is the most denominated foreign currency. The Euro to US dollar is a widely used currency pair in the forex market as these two currencies represent the world’s enormous economy. Forex trade is simple as exchanging currencies at the bank. The main players of forex markets are the central banks, financial institutions, intermediaries, investments banks, and other banks. Central Bank is the supreme player who decides the currency value of their own nation on the forex market. Mostly foreign exchange-traded at FX market (forex market) when tourists’ visits a foreign country, import, and export happens between two countries.

Question

Qa 09.

Assume that a bank has quoted the Swiss Franc at
$1.07, the Australian Dollar at $0.75, and the
quoted cross exchange rate of CHF/AUD is 1
Franc= 1.48 Australian Dollars. Mia currently has
$800,000 and wants to capitalize on a possible
arbitrage opportunity. Assume that the bid/ask is
the same in this problem.
1) Does an arbitrage opportunity exist?
2) If an arbitrage opportunity exists, calculate
Mia's gain/loss. Show all supporting work.
Make sure to show all work! If you are using
Google Sheets or Excel, please either attach
your file to the problem or e-mail/share it. If
you write your answers out by hand, make sure
to take a picture and attach it (or e-mail it).

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