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Basic Question 18 of 19
You notice the Dutch guilder is offered at $0.40520 in New York, the Euro is being bid in Europe at $0.89370, and the Dutch guilder is being bid in Rotterdam for E0.45380. You believe arbitrage is possible and set out to find out what the profit on $1,000,000 would be. You find:
B. arbitrage is possible with a profit of $2,648
C. arbitrage is possible with a profit of $891.
A. arbitrage is not possible
B. arbitrage is possible with a profit of $2,648
C. arbitrage is possible with a profit of $891.
User Contributed Comments 1
| User | Comment |
|---|---|
| quanttrader | sell $1,000,000 to buy 2,467,917 DG in NY, sell the DG for Euros (in Europe) to get 1,119,940.74 and sell the Euros for $ in Europe for $1,000,891 - $891 profit. |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
calculate and interpret the bid-ask spread on a spot or forward foreign currency quotation and describe the factors that affect the bid-offer spread;
identify a triangular arbitrage opportunity and calculate its profit, given the bid-offer quotations for three currencies;
CFA® 2025 Level II Curriculum, Volume 1, Module 8.