Question

The New Zealand dollar to U.S. dollar exchange rate is 1.36, and the British pound to U.S. dollar exchange rate is 0.62. If you find that the British pound to New Zealand dollar were trading at 0.49, what would you do to earn a riskless profit

Answer 1

To earn a riskless profit, convert U.S. dollars to British pounds, then to New Zealand dollars, and finally convert back to U.S. dollars using the given exchange rates.

Step-by-step explanation:

To earn a riskless profit based on the given exchange rates, you can follow the following steps:

Convert a certain amount of U.S. dollars to British pounds based on the current exchange rate of 0.62. Let's say you convert $10,000 to £6,200.

1. Convert the £6,200 to New Zealand dollars using the exchange rate of 0.49. This will give you NZD (New Zealand dollars) 12,653.
2. Now, convert the NZD 12,653 back to U.S. dollars using the exchange rate of 1.36. You will end up with $9,304.28.

By following these steps, you have made a riskless profit of $304.28.

Answer 2

Answer: To earn a riskless profit, you will need $.05 per US dollar invested.

Step-by-step explanation:

First, I would Exchange $1 USD into New Zealand dollars, This would give me;

1.00 x 1.39 = $1.39 NZD. Then, I would Exchange NZD to British Pounds to give me

1.39 x .47 = £0.65. Lastly I would Exchange British Pound back to USD which would be

I USD= £0.62

Therefore £0.65 to dollar gives

= 0.65 x ($1/£.62) = $1.05 USD

Therefore my riskless profit becomes $.05because

$1.05 - $1.00 = $.05 per US dollar invested.