Q. Following are provided by two banks:
Bank A: 2786 Pesos / US$
Bank B: 2783 Pesos / US$
A. If we assume no transaction costs, there is an opportunity for arbitrage. If an arbitrageur has US $20,000 how can she make profit and how much can she make? Please show your working out.
B. If there is 1% transaction cost for transactions is there still an opportunity for arbitrage? Please show your working out.