How much profit could person make via three-point arbitrage

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Question -

1. Assume a speculator anticipates that the spot rate of the franc in three months will be lower than today's 3-month forward rate of the franc, $0.50 = 1 franc.

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a. How can this speculator use $1 million to speculate in the forward market?

b. What occurs if the franc's spot rate in 3 months is $0.40? $0.60? $0.50?

2. You are given the following spot exchange rates: $1 = 3 francs, $1 = 4 schillings, and 1 franc = 2 schillings. Ignoring transaction costs, how much profit could a person make via three-point arbitrage?

Reference no: EM132172251

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