Question

You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00.

If a bank quotes you a cross rate of £1.00 = €1.20, how much money can an astute trader make?

Answer 1

$41,666.667

Step-by-step explanation:

The computation of the money astute trader make is

= Invested amount × (Euro exchange rate ÷ dollar exchange rate) × (Pound cross rate ÷ euro cross rate) × dollar exchange rate

= $1,000,000 × (€1.00 ÷ $1.6) × (£1 ÷ €1.2) × $2

= $1,041,666.667

So, the money would be

= $1,041,666.667 - $1,000,000

= $41,666.667