Question

    Suppose the following bilateral spot exchange rates are being quoted for the Danish krone (DKK), the US dollar (US$) and the euro (€):

    US$/€ = 1.5

    DKK/€ = 7.0

    DKK/$ = 5.0

    If you start with 100€, the most you could end up with in a single round of triangular arbitrage would be...

    A €107.14 Correct Answer Incorrect Answer
    B €750 Correct Answer Incorrect Answer
    C €150.5 Correct Answer Incorrect Answer
    D €103.1 Correct Answer Incorrect Answer
    E €501 Correct Answer Incorrect Answer

    Solution

    Convert €100 to $150 (1.5*100) to DKK 750 (150*5) and back to €107.14 (750/7).

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