Ada works in a private fund firm and is responsible for currency trading. Derek is Ada’s client and would like to discuss with Ada about his account progress. Before the discussion, Ada reviews the following tasks:
(a) Derek suspects the rationale of the triangular arbitrage because he cannot always benefit from the triangular arbitrage. Do you agree with Derek? Why?
(b) There are different quotes from three banks for Derek:
- Bank I is willing to buy or sell Japanese yen at an exchange of 112.65 yen per US dollar;
- Bank II is willing to buy or sell the Australian dollar at an exchange rate of US$0.7701 per Australian dollar;
- Bank III is willing to exchange Japanese yen at an exchange rate of 1 Australian dollar for 86.75 yen
Based on the above quotes, please demonstrate how you can make a profit with US$60,000,000. (Hints: The triangular arbitrage.)