Citibank quotes NZ$1 = US$ 0.6624. Deutsche Bank quotes € 1 = US$1.1758.BNZ Bank quotes € 1 = NZ$1.7762. a. If these quotes are simultaneously observed spot rates, can you make an arbitrage profit? If so, calculate what profit would you make if you started with NZ$ 1 million. Assume that there are no transaction costs. b. What would be your arbitrage profit if you were to incur total transaction costs of 0.1% of the amount used for conversions?
Citibank quotes NZ$1 = US$ 0.6624. Deutsche Bank quotes € 1 = US$1.1758.BNZ Bank quotes € 1 = NZ$1.7762. a. If these quotes are simultaneously observed spot rates, can you make an arbitrage profit? If so, calculate what profit would you make if you started with NZ$ 1 million. Assume that there are no transaction costs. b. What would be your arbitrage profit if you were to incur total transaction costs of 0.1% of the amount used for conversions?
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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Citibank quotes NZ$1 = US$ 0.6624. Deutsche Bank quotes € 1 = US$1.1758.BNZ Bank quotes
€ 1 = NZ$1.7762.
a. If these quotes are simultaneously observed spot rates, can you make an arbitrage profit? If
so, calculate what profit would you make if you started with NZ$ 1 million. Assume that
there are no transaction costs.
b. What would be your arbitrage profit if you were to incur total transaction costs of 0.1% of the
amount used for conversions?
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