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- Jun 18, 2026
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Consider the following spot exchange rate quotes for the U.S. dollar (USD), the British pound (GBP), and the Euro (EUR)
EUR/USD 0.7725-30
GBP/USD 0.6205-10
GBP/EUR 0.8030-40
a) Is it possible to make triangular arbitrage profits trading at these quotes? (Avoid rounding in any of the intermediate calculations).
b) Use the EUR/USD and the GBP/EUR quotes to compute the bid and ask cross spot exchange rate GBP/USD.
c) Your client, David Hockney, a British painter, wants to convert 10 million USD from the sale of a painting into GBP. What is the best way to execute this transaction from the standpoint of your client, to use the direct GBP/USD quote or the cross rate computed in b)?
2. Consider the following quotes for the U.S. dollar and the Malaysian Ringgit pound (MYR):
One-year interest rate U.S.: 1.00 percent per annum.
One-year interest rate Malaysian Ringgit: 3.00 percent per annum.
Spot exchange rate: 0.3230 USD/MYR
One-year forward exchange rate: 0.3220 USD/MYR
a) Suppose you want to sell 1 million MYR forward. Compute the synthetic forward rate and compare it with the outright forward rate. Which is better?
b) Duit, a Malasyan company, is currently borrowing 1 million MYR in Malaysia at an interest rate of 4.0 percent. Would the company be better off if it borrowed dollars from a U.S. bank? (The amount of dollars borrowed has to be such that the company will still get 1 million MYR today).
EUR/USD 0.7725-30
GBP/USD 0.6205-10
GBP/EUR 0.8030-40
a) Is it possible to make triangular arbitrage profits trading at these quotes? (Avoid rounding in any of the intermediate calculations).
b) Use the EUR/USD and the GBP/EUR quotes to compute the bid and ask cross spot exchange rate GBP/USD.
c) Your client, David Hockney, a British painter, wants to convert 10 million USD from the sale of a painting into GBP. What is the best way to execute this transaction from the standpoint of your client, to use the direct GBP/USD quote or the cross rate computed in b)?
2. Consider the following quotes for the U.S. dollar and the Malaysian Ringgit pound (MYR):
One-year interest rate U.S.: 1.00 percent per annum.
One-year interest rate Malaysian Ringgit: 3.00 percent per annum.
Spot exchange rate: 0.3230 USD/MYR
One-year forward exchange rate: 0.3220 USD/MYR
a) Suppose you want to sell 1 million MYR forward. Compute the synthetic forward rate and compare it with the outright forward rate. Which is better?
b) Duit, a Malasyan company, is currently borrowing 1 million MYR in Malaysia at an interest rate of 4.0 percent. Would the company be better off if it borrowed dollars from a U.S. bank? (The amount of dollars borrowed has to be such that the company will still get 1 million MYR today).