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Is there a possibility for three-point arbitrage

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Reference no: EM133068143

The following exchange rates are quoted simultaneously in Auckland, Sydney, and Tokyo:

S(NZD/AUD) S(JPY/AUD) S(JPY/NZD)

1.1525 72.75 65.25

(i) Is there a possibility for three-point arbitrage? If so, what is the profitable sequence? If a trader has access to AUD 1,000,000 available for this purpose, how much profit will he make?

(ii) How do the three exchange rates as mentioned above change as a result of arbitrage?

Reference no: EM133068143

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