Following are from Hubris Bank and Modesty Bank:
Hubris bank : 1786 Lira/ US$
Modesty Bank: 1783 Lira/ US$
Answer the given questions based on the above figures.
1) If we assume no transaction costs, there is evidently an opportunity for arbitrage here. if an arbitrageur started with US $10,000, exactly how would the arbitrageur make profits and how much profit would he or she make?
2) As many traders engaged in arbitrage, who do you expect to see in the above quotes at these two banks?
3) If there is a 1% transaction cost for transactions, is there still an opportunity for arbitrage?