Triangular Arbitrage Assume the U

question 65

Multiple Choice

Triangular Arbitrage Assume the U.S.dollar spot exchange rate with the Canadian dollar is $1 = CA$1.125.The U.S.dollar and Swiss Franc exchange rate is $1 = 1.235.If the cross rate between the franc and Canadian dollar is 1 franc = CA$0.9820,then show that an arbitrage is possible.What positions should be taken to profit from the mispricing?

• A)Start with U.S.dollars, buy francs and convert them to Canadian dollars, then convert back to U.S.dollars.
• B)Start with francs, buy U.S.dollars and convert them to Canadian dollars, then convert back to francs.
• C)Start with Canadian dollars, buy francs and convert to U.S.dollars, then convert back to Canadian dollars.
• D)Start with U.S.dollars, buy Canadian dollars and convert to francs, then convert back to U.S.dollars.

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