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QUESTION

# A bank is quoting the following exchange rates against the dollar for Swiss franc and the Australian dollar: SF/\$:5960-70 A\$/\$:7225-35 A client of...

• A bank is quoting the following exchange rates against the dollar for Swiss franc and the Australian dollar:

SF/\$: 1.5960-70

A\$/\$: 1.7225-35

A client of the bank asks the bank for an A\$/SF quote. What cross-rate would the bank quote?

• A trader specializes in cross-rate arbitrage. She notices the following quotes:

Swiss franc/dollar = SF1.5971/\$

Australian dollar/ US dollar = A\$1.8215/\$

Australian dollar/Swiss franc = A\$1.1440/SF

Does an arbitrage exist? If so, what are the steps she should take if she had \$1,000,000?

• The market bid/ask quote for \$/£ is \$1.4397 - 1.4402. A market maker has a strong opinion about the future direction of the pound and places his quote as "98-03". Which currency does the market maker expect to appreciate?