Suppose cross rate arbitrage investors notice the following quotes:
Swiss franc/U.S. dollar =1.5971
Australian dollar/U.S. dollar =1.8215
Australian dollar/Swiss franc =1.1450
1. Ignoring transaction cost does a U.S. investor have an opportunity to earn a guaranteed profit? What actions would he have to take and what is his profit if any. He has $1,000,000 to invest.
2. Can a Swiss investor earn a guaranteed profit? What actions would he take and how much would be his profit. He has SF 1,597,100 to invest.
3. What SF/$ price will eliminate triangular arbitrage opportunity for a Australian investor?
Answers questions on triangular arbitrage.