Triangular Arbitrage
Solve the following problem:
You go to a bank and are given these quotes:
You can buy a euro for 14 pesos.
The bank will pay you 13 pesos for a euro.
a U.S. dollar for 10 pesos
The bank will pay you 9 pesos for a U.S. dollar. You have $1,000. Can you use triangular arbitrage to generate a profit? If so, explain the order of the transactions that you would execute and the profit that you would earn. If you cannot earn a profit from triangular arbitrage, explain why.