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Determine whether triangular arbitrage is feasible

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Reference no: EM132909084

Problem - As an employee of the foreign exchange department for a large company, you have been given the following information:

Beginning of Year

Spot rate of £ ¼ $1.596

Spot rate of Australian dollar (A$) ¼ $.70

Cross exchange rate: £1 ¼ A$2.28

One-year forward rate of A$ ¼ $.71

One-year forward rate of £ ¼ $1.58004

One-year U.S. interest rate ¼ 8.00%

One-year British interest rate ¼ 9.09%

One-year Australian interest rate ¼ 7.00%

Determine whether triangular arbitrage is feasible and, if so, how it should be conducted to make a profit.

Reference no: EM132909084

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