Question

Another dealer is quoting the ZAR/SEK cross-rate at 1.1210. The arbitrage profit that can be earned is closest to:

a. ZAR 3671 per million SEK traded.
b. SEK 4200 per million ZAR traded.
c. ZAR 4200 per million SEK traded.
d. No arbitrage profit is possible.

Answer 1

The student is asking about the ZAR/SEK cross-rate and the possibility of earning arbitrage profit. The answer is no arbitrage profit is possible.

Step-by-step explanation:

Arbitrage is the process of buying and selling goods or currencies across international borders at a profit. In this case, the student is asking about the ZAR/SEK cross-rate, which represents the exchange rate between the South African Rand (ZAR) and the Swedish Krona (SEK). The dealer is quoting a cross-rate of 1.1210, which means that 1 South African Rand is equivalent to 1.1210 Swedish Krona. To determine the arbitrage profit, we need to compare this quoted rate to the market rate. If the market rate is higher than 1.1210, it would be profitable to buy South African Rand and sell Swedish Krona. If the market rate is lower, it would be profitable to buy Swedish Krona and sell South African Rand.

Without knowing the market rate, we cannot determine the exact arbitrage profit. Therefore, the correct answer is d. No arbitrage profit is possible.