Arbitrage opportunity from spot quotation of currencies
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Suppose you observe the following direct spot quotations in New York and Toronto, respectively: 0.8000-30 and 1.2500-70. What are the arbitrage profits per $1 million?
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This solution identifies arbitrage opportunity from spot quotation of currencies.
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Suppose you observe the following direct spot quotations in New York and Toronto, respectively: 0.8000-30 and 1.2500-70. What are the arbitrage profits per $1 million?
You can buy 1 Canadian dollar for $0.8030 and sell 1 Canadian dollar for $0.8000 in New York
This means that the bid rate for US dollar = CAD 1.2453 = 1/ .803
and the ask rate for US dollar is= CAD 1.2500 = 1/ .8 in New York
You can buy 1 US dollar for CAD 1.2570 and sell 1 US dollar for CAD 1.2500 in Toronto
This means that the bid rate ...
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