- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 8. Currency Exchange Rates: Understanding Equilibrium Value
- Subject 1. Foreign Exchange Spot Markets
CFA Practice Question
Calculate the profit (in USD) on a triangular arbitrage opportunity as follows: start with $1,000, 000, buy Australian dollars at AUD1.95/$, buy New Zealand dollars at NZD1.29/AUD, buy U.S. dollars at NZD2.38/$.
Correct Answer: $56,933
Formula is as follows: $1,000,000 * 1.95 * 1.29 / 2.38 = 1,056,933 - $1,000,000 = $56,933.
User Contributed Comments 1
| User | Comment |
|---|---|
| mtsimone | AU/US * NZ/AU = 1.95AU/1US * 1.29NZ/1AU. AUs cancel, so (1.95 *1.29NZ)/1US = 2.551NZ/US ask. 2.551ask/2.38ask = 1.056933 round trip - 1 inv = arb. I have to try to keep it simple... |