The Market for Foreign Exchange 外匯市場

Chapter Five
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Function and Structure of FX MarketF X 市場的功能和結構

Function of FX market is to assist clients in the conduct of international

commerce
F X 市場的職能是協助客戶進行國際商務
• Service that commercial banks provide to their clients. 商業銀行為其客
戶提供的服務。
Major market segments 主要市場區隔
1. Australasia: Sydney, Tokyo, Hong Kong, Singapore, and Bahrain. 澳大
拉西亞：悉尼、東京、香港、新加坡和巴林。
2. Europe: Zurich, Frankfurt, Paris, Brussels, Amsterdam, and London. 歐
洲：蘇黎世、法蘭克福、巴黎、布魯塞爾、阿姆斯特丹和倫敦
3. North America: New York, Montreal, Toronto, Chicago, San Francisco,
and Los Angeles. 北美：紐約、蒙特利爾、多倫多、芝加哥、舊金
山和洛杉磯。
© McGraw Hill 5
FX Market ParticipantsF X 市場參與者
FX market is a two-tier market
F X 市場是一個兩級市場
1. Interbank (wholesale) market 銀行間（批發）市場
• About 100 to 200 banks worldwide stand ready to “make a market” in foreign
exchange. 全球約有 100 至 200 家銀行隨時準備在外匯中「建立市場」。
• Nonbank dealers account for about 50% of the market. 非銀行轉銷商約佔市場的
50% 。
• There are FX brokers who match buy and sell orders but do not carry inventory and
FX specialists. 有 F X 經紀人匹配買入和賣出訂單，但不攜帶庫存和 F X 專
家。
2. Client (retail) market 客戶（零售）市場
3. Market participants include international banks, their customers, nonbank dealers,
FX brokers, and central banks. 市場參與者包括國際銀行，他們的客戶，非銀
行交易商， F X 經紀人和中央銀行。

© McGraw Hill 5
Shares of Reported Global Foreign Exchange Turnover by Country, 2019
2019 年按國家劃分的全球外匯交易額報告份額

Source: Tabulated from data in Triennial Central Bank Survey, Preliminary Results, Bank for
International Settlements, September 2019. 資料來源：根據三年期中央銀行調查中的數據製成
表格，初步結果，國際清算銀行， 2019 年 9 月。
© McGraw Hill 5
Correspondent Banking Relationships 代理銀行關係

Interbank market 銀行間市場

• Made up of a network of correspondent banking

relationships, with large commercial banks maintaining
demand deposit accounts (that is, correspondent banking
accounts) with one another. 由代理銀行關係網路組成，大型
商業銀行彼此之間維護活期存款帳戶（即代理銀行帳
戶）。

• Correspondent bank account network facilitates the efficient

functioning of the FX market. 代理銀行賬戶網路促進了 F X
市場的有效運作。

•
© McGraw Hill 5
Correspondent Banking Relationships 代理銀行關係

• Bank A is in London. Bank B is in New York. 銀行 A 在倫敦。 B 銀行位

於紐約。
• The current exchange rate is £1.00 = $1.25. 目前的匯率是 £1.00 =
$1.25 。
• A currency trader employed at Bank A buys £160m from a currency trader
at Bank B for $200 settled using its correspondent relationship. A 銀行僱
用的貨幣交易員從 B 銀行的貨幣交易員那裡購買 1.6 億英鎊，使用其
代理關係以 200 美元結算。

Bank A $200 Bank B

London £160 NYC
Copyright © 2018 by the McGraw-Hill Companies, Inc. All rights reserved. 5-6
 Correspondent Banking Relationships:
(Bank A’s Balance Sheet Before and After)
代理銀行關係：
（銀行 A 之前和之後的資產負債表）
Bank A buys £160m from Bank B for $200m 銀行 A 以 2 億美元的價格從 B 銀行購買了 1.6 億英鎊

Bank A $200 Bank B

London £160 NYC

Bank A (London) 000s

Assets Liabilities and Equity
OLD NEW OLD NEW
£ deposit at B £300 £460 B’s $ deposit $580 $780
$ deposit at B $800 $600 B’s £ deposit £600 £440

Cash in the Vault £600 £600 Other Liabilities £300 £300

Other Assets £400 £400 Owners Equity £576 £576
Total Assets £1,940 £1,940 Total Liabilities & Equity £1,940 £1,940
Copyright © 2018 by the McGraw-Hill Companies, Inc. All rights reserved. 5-7
 Correspondent Banking Relationships:
(Bank B’s Balance Sheet Before and After) 代理銀行關係：
（銀行 B 之前和之後的資產負債表）

Bank A buys £160m from Bank B for $200m 銀行 A 以 2 億美元的價格從 B 銀行購買了 1.6 億英鎊

Bank A $200 Bank B

London £160 NYC

Bank B (NYC) 000s

Assets Liabilities and Equity
OLD NEW OLD NEW
$ deposit at A $580 $780 A’s £ deposit £ 300 £460
£ deposit at A £600 £440 A’s $ deposit $800 $600

Cash in the Vault $200 $200 Other Liabilities $200 $200

Other Assets $600 $600 Owners Equity $755 $755

Total Assets $2,130 $2,130 Total Liabilities & Equity $2,130 $2,130
Copyright © 2018 by the McGraw-Hill Companies, Inc. All rights reserved. 5-8
Correspondent Banking Communications 代理銀行通訊

International commercial banks communicate with one another

using: 國際商業銀行通過以下方式相互溝通：
• SWIFT: Society for Worldwide Interbank Financial
Telecommunications. 全球銀行間金融電信協會。
• CHIPS: Clearing House Interbank Payments System. 清算所
銀行間支付系統。
• ECHO: Exchange Clearing House Limited. 交易所結算所有
限公司。

© McGraw Hill 5
Spot Market 現貨市場
Spot market involves almost immediate purchase or sale of
foreign exchange 現貨市場涉及幾乎立即購買或出售外匯

One can buy (take a long position) or sell (take a short position)
foreign exchange 可以買入（做多）或賣出（做空）外匯

© McGraw Hill 5-1

 Spot Rate Quotations 即期匯率報價 1

Spot rate currency quotations can be stated in direct or indirect terms 即期匯
率貨幣報價可以直接或間接條款列報

• Direct quotations refer to the price of one unit of a foreign currency in

terms of the domestic currency. 直接報價是指一個單位的外幣以本國貨
幣計算的價格。

• Indirect quotation is the price of one domestic currency in terms of a

foreign currency. 間接報價是一種本國貨幣相對於外幣的價格。

• European quotations refer to the price of one unit of U.S. dollar. 歐洲報
價是指一個單位的美元價格。

• American quotations are a direct quote from the U.S. perspective. 美國報
價是從美國的角度直接引用的。

© McGraw Hill 5-1

 Exchange Rates 1

Currencies April 3, 2019

U.S.-dollar foreign-exchange rates in late New York trading

—Wed — —Wed —
Country/Currency In US$ Per US$ Country/Currency In US$ Per US$
Americas Asia Pacific
Argentina peso .0233 42.854 India rupee .01461 68.425
Brazil real .2583 3.8715 Indonesia rupiah .0000703 14223
Canada dollar .7493 1.3345 Japan yen .00897 111.49
Chile peso .001500 666.73 1-mos forward .00899 111.22
Colombia peso .000320 3123.6 3-mos forward .00903 110.70
Ecuador US dollar 1 1 6-mos forward .00910 109.90
Mexico peso .0520 19.220 Malaysia ringgit .2452 4.0790
Peru new sol .3034 3.296 New Zealand dollar .6778 1.4753
Uruguay peso .02965 33.4300 Pakistan rupee .00709 140.47
Asia Pacific Philippines peso .0192 52.124
Australian dollar .7113 1.4060 Singapore dollar .7387 1.3537
1-mos forward .7117 1.4051 South Korea won .0008814 1134.5
3-mos forward .7125 1.4035 Taiwan dollar .03246 30.812
6-mos forward .7139 1.4008 Thailand baht .03150 31.748
China yuan .1490 6.7114 Vietnam dong .00004 23146.3
Hong Kong dollar .1274 7.8494

© McGraw Hill 5-1

 Exchange Rates 2

—Wed — —Wed —
Country/Currency In US$ Per US$ Country/Currency In US$ Per US$
Europe Europe
Czech Rep. koruna .04372 22.874 UK pound 1.3158 .7600
Denmark krone .1505 6.6457 1-mos forward 1.3180 .7588
Euro area euro 1.1233 .8903 3-mos forward 1.3218 .7565
1-mos forward 1.1262 .8880 6-mos forward 1.3277 .7532
3-mos forward 1.1319 .8835 Middle East/Africa
6-mos forward 1.1407 .8767 Bahrain dinar 2.6526 .3770
Hungary forint .00351 284.71 Egypt pound .0577 17.325
Norway krone .1167 8.5728 Israel shekel .2777 3.6016
Poland zloty .2619 3.8183 Jordan dinar 1.4104 .7090
Russia ruble .01533 65.241 Kuwait dinar 3.2854 .3044
Sweden krona .1079 9.2695 Lebanon pound .00066 1507.50
Switzerland franc 1.0018 .9982 Saudi Arabia riyal .2666 3.7504
1-mos forward 1.0047 .9953 South Africa rand .0707 14.146
3-mos forward 1.0104 .9897 UAE dirham .2723 3.6730
6-mos forward 1.0193 .9811
Turkey lira .1778 5.6248
Source: Compiled using data from Bloomberg and
OANDA online currency converter at www.oanda.com.

© McGraw Hill 5-1

The Bid-Ask Spread 買賣差價
Interbank FX traders buy currency at the bid price and sell
currency at the higher offer or ask price 銀行間 F X 交易者以買
入價買入貨幣，以更高的賣出價或賣出價賣出貨幣

Average of the bid and ask rates are called mid-rates 買入價和賣
出價的平均值稱為中間利率

Bid-ask spread allows dealers to earn a profit 買賣差價允許交易

商賺取利潤

© McGraw Hill 5-1

 Spot FX Trading
現貨 F X 交易
In the interbank market, the standard size trade is about $10
million 在銀行間市場，標準規模交易約為 1000 萬美元
Spot quotations are good for only a few seconds before being
withdrawn 現貨報價在提取前只有幾秒鐘的有效期
Bid-ask quotes are normally four decimal places (for example,
$1.3153) 買賣報價通常是小數點后四位（例如， $1.3153 ）
• $1.31 is known as the bid quote big figure and assumed to be
known by all traders. 1.31 美元被稱為買入價位報價大數
位，並假設所有交易者都知道。
• Last two digits (.53) is the small figure. 最後兩位數位
（ .53 ） 是小數位
© McGraw Hill 5-1
The Bid-Ask Spread:
Indirect Ask as reciprocal of Direct Bid 買賣價差：間接賣價作為直接買入價的
對等
USD Bank American Terms European Terms
Quotations
Bid Ask Bid Ask

Euro $1.1250/€ $1.1255/€ €0.8885/$ €0.8889/$

Notice that the reciprocal of the S($/) bid is the S(/$) ask: 請注意， S （ $/“$” ） 出
價的倒數是 S （“€” /$ ） 詢價 :

$ 1.1250 $1,125 Customer

$ 1,1250= € 1,000 × Dealer
€ 1.00
€ 0.8889
Dealer Customer € 1,000= $ 1,1250 ×
$ 1.00
1,000
Customer buys $1,125 from dealer at indirect ask
Customer sells €1,000 to dealer at direct bid
Copyright © 2018 by the McGraw-Hill Companies, Inc. All rights reserved. 5-16
Currency Conversion with Bid-Ask Spreads 具有買賣價差的貨幣轉換

A speculator in New York wants to take a $10,000 position in the pound. He faces
these bid-ask prices: 紐約的一位投機者希望持有 10,000 美元的英鎊頭寸。他面臨
著以下買賣價格：
Bid Ask
Dealer will pay $1.2505 for 1 GBP;
S($/£) 1.2505 – 20 he is asking $1.2520/£.
S(£/$) .7987– 97 He will pay £0.7987 for $1 and will
charge £0.7997 for $1 轉銷商將支
After his trade, what will be his position? 付 1.2505 美元兌換 1 英鎊 ; 他要
的是 1.2520 美元 / 英鎊。
他將以 1 美元支付 0.7987 英鎊，
並以 1 美元收取 0.7997 英鎊

Copyright © 2018 by the McGraw-Hill Companies, Inc. All rights reserved. 5-17
Sample Currency Conversion Problem 貨幣換算問題示例
• A businessman has just completed transactions in Italy and England.
He is now holding €250,000 and £500,000 and wants to convert to
U.S. dollars. 一位商人剛剛在義大利和英國完成了交易。他現在
持有 25 萬歐元和 50 萬英鎊，並希望兌換成美元。
• His currency dealer provides this quotation: 他的貨幣交易商提供了
以下報價：
GBP/USD 0.7987– 97
USD/EUR 1.1250 – 55
• What are his proceeds from conversion? 他從皈依中得到的收益是
多少？

Copyright © 2018 by the McGraw-Hill Companies, Inc. All rights reserved.

 Second Sample Currency Conversion Problem 第二個示例貨幣轉換問題

• An Italian has just completed transactions in America and England.

一位義大利人剛剛在美國和英國完成了交易。
• He is now holding $125,000 and £500,000, and wants to convert
both amounts to euro. 他現在持有 125 ， 000 美元和 500 ， 000
英鎊，並希望將這兩筆金額轉換為歐元。
• His currency dealer provides this quotation: 他的貨幣交易商提供了
以下報價：
GBP/USD 0.7987– 97
USD/EUR 1.1250 – 55
• What are his proceeds from conversion?

Copyright © 2018 by the McGraw-Hill Companies, Inc. All rights reserved.

Cross-Rate 交叉匯率
Cross-exchange rate is an exchange rate between a currency pair
where neither currency is the U.S. dollar
交叉匯率是貨幣對之間的匯率，其中兩種貨幣都不是美元

Currency against currency trade is when a customer wants to

trade out a nondollar currency for another nondollar currency 貨
幣對貨幣交易是指客戶想要將一種非美元貨幣換成另一種非
美元貨幣
For example, a customer wants to trade out of British pounds into
Swiss francs. 例如，客戶希望將英鎊兌換成瑞士法郎。
•
© McGraw Hill 5-2
 Spot Cross Rates 即期交叉匯率
Suppose that S(€/$) = 0.9524 (i.e., € 0.9524 = $ 1.0000) and
S(£/$) = 0.8000 (i.e., £0.8000 = $1.0000).
What must the S(€/£) cross rate be?

Copyright © 2018 by the McGraw-Hill Companies, Inc. All rights reserved. 5-21
 Spot Cross Rates 即期交叉匯率
Suppose that S($/€) = 1.0500 (i.e., $1.0500 = €1.0000) and
S($/£) = 1.2500 (i.e., $1.2500 = £1.0000 ).
What must the S(€/£) cross rate be?

Copyright © 2018 by the McGraw-Hill Companies, Inc. All rights reserved. 5-22
£10,000 sell £ at bid $12,000 buy € at ask €11,418

Cross Bid Rates with Bid-Ask Spreads 交叉買入價與買賣差價

USD Bank American Terms European Terms

Quotations
Bid Ask Bid Ask

Pounds 1.2000 1.2500 .8000 .8333

Euros
€/£ 1.0500
€1.1418 1.0510 .9515 .9524
£0.8758
To find the €/£ cross bid rate, consider a retail customer who:
Starts with £10,000, sells £ for $, and buys €:
$ 1.2000 € 1.0000 1
£ 10,000 × × =€ 11,418 €1.1418/£
£ 1.0000 $ 1.0510
He has effectively sold £ at a €/£ bid price of €1.1418/£.
Copyright © 2018 by the McGraw-Hill Companies, Inc. All rights reserved. 5-23
€10,000 sell € at bid $10,500 buy £ at ask £8,400

Cross Ask Rates with Bid-Ask Spreads

USD Bank American Terms European Terms
Quotations
Bid Ask Bid Ask

Pounds 1.2000 1.2500 .8000 .8333

Euros 1.0500 1.0510 .9515 .9524
€/£ €1.1418 €1.1905 £0.8400 £0.8758

To find the €/£ cross ask rate, consider a retail customer who
starts with €10,000, sells € for $, and buys £:
$ 1.0500 £ 1.0000 1
€ 10,000 × × =£ 8,400 = €1.1905/£
€ 1.0000 $ 1.2500 €1/£0.8400

He has effectively sold € at a £/€ bid price of £0.8400/€.

He has effectively bought £ at a €/£ ask price of €1.1905/£.
Copyright © 2018 by the McGraw-Hill Companies, Inc. All rights reserved. 5-24
 Cross Rates with Bid-Ask Spreads
direct indirect
Bank American Terms European Terms
Quotations
Bid Ask Bid Ask

£:$ 1.2000 1.2500 .8000 .8333

€:$ 1.0500 1.0510 .9515 .9524
€/£ €1.1418/£ €1.1905/£ £0.8400/€ £0.8758/€
Recall that the reciprocal of the €1.1905 €1.000
=
S(£/€) bid is the S(€/£) ask. £1.00 £0.8400
He has bought £ at a €/£ ask price of €1.1905/£

Copyright © 2018 by the McGraw-Hill Companies, Inc. All rights reserved. 5-25
Triangular Arbitrage 三角套利
Triangular arbitrage is the process of trading out of the U.S. dollar into a
second currency, then trading it for a third currency, which in turn is traded for
U.S. dollars 三角套利是從美元交易成第二種貨幣，然後將其交易成第三
種貨幣，然後又交易成美元的過程。
• Purpose is to earn an arbitrage profit via trading from the second to the
third currency when the direct cross-exchange rate between the two is not in
alignment with the implied cross-exchange rate. 目的是在兩者之間的直接
交叉匯率與隱含的交叉匯率不一致時，通過從第二種貨幣到第三種貨
幣的交易賺取套利利潤。
• Arbitrage is a zero-risk, zero-investment strategy from which a profit is
guaranteed. 套利是一種零風險，零投資策略，從中可以保證利潤。

© McGraw Hill 5-2

 Triangular Arbitrage Example 三角套利示例
Triangular arbitrage is the result of a discrepancy between three foreign currencies that occurs when the
currency's exchange rates do not exactly match up.  三角套利是三種外幣之間差異的結果，當貨幣的匯
率不完全匹配時，就會發生這種差異。

Deutsche Bank $:£ $1.2000/£

Credit Lyonnais $:€ $1.0510/€
Credit Agricole €/£ €1.1400/£
“No Arbitrage” €/£ €1.1418/£
Suppose we observe these banks posting these exchange rates. As we have calculated the “no arbitrage” €/£
cross rate, we can see that there is an arbitrage opportunity: Credit Agricole’s rate is too low. 假設我們觀察
到這些銀行發佈這些匯率。正如我們計算出“無套利”€ /£ 交叉匯率時，我們可以看到存在套利機
會：農業信貸的匯率太低。

$ 1.2000 € 1.0000
× =€ 1.1418/ £
£ 1.0000 $ 1.0510

Copyright © 2018 by the McGraw-Hill Companies, Inc. All rights reserved. 5-27
Triangular Arbitrage Example (concluded) 三角套利示例
（已結束）
Deutsche Bank £:$ $1.2000/£
Credit Lyonnais €:$ $1.0510/€
Credit Agricole £:€ €1.1400/£

Start with $1mil. Sell $ to Credit Lyonnais for € 951,475

Buy £ from Credit Agricole, receive £ 834,627:

Sell £ to Deutsche Bank, receive $1,001,552.41.

Copyright © 2018 by the McGraw-Hill Companies, Inc. All rights reserved. 5-28
Spot Foreign Exchange Market Microstructure 即期外匯市場微觀結構

Market microstructure refers to the basic mechanics of how a

marketplace operates 市場微觀結構是指市場如何運作的基本
機制

• Studies have shown: 研究表明

• Bid-ask spreads in the spot FX market increased with FX exchange rate
volatility and decreased with dealer competition. 現貨 F X 市場的買賣
差價隨著 F X 匯率波動而增加，隨著交易商的競爭而減少。

© McGraw Hill 5-2

The Forward Market 遠期市場
Forward market involves contracting today for the future purchase or sale of
FX 遠期市場涉及今天為將來購買或出售 F X 而簽訂合約
• No money changes hands upon entering the contract today. 今天簽訂合同
時沒有錢轉手。
• May be used to hedge FX exposure or to speculate in FX market. 可用於對
沖 F X 風險敞口或在 F X 市場中進行投機。
• Forward price is usually higher (at a premium) or lower (at a discount) than
spot price. 遠期價格通常高於現貨價格（溢價）或更低（折扣）。
• Bank quotes for maturities of 1, 3, 6, 9, and 12 months are readily available.
1 、 3 、 6 、 9 和 12 個月到期的銀行報價隨時可用

© McGraw Hill 5-3

 Forward Rate Quotations 遠期利率報價 1

Forward rate quotations use the following notations: 遠期費率

報價使用以下表示法：
• FN (j/k) is the notation used to refer to the price of one unit of
currency k in terms of currency j for delivery in N months. FN
（ j/k ） 是用於指代貨幣單位 k 在 N 個月內交付的貨
幣單位 k 的價格的符號。
• F notation is used to denote a forward exchange rate. F 表示法
用於表示遠期匯率。
• Like spot quotes, forward quotes are either direct or indirect
with one being the reciprocal of the other. 與現貨報價一樣，
遠期報價是直接或間接的，其中一個是另一個的倒數。
© McGraw Hill 5-3
 Forward Rate Quotations
遠期利率報價
2

American term Swiss franc forward quotations 美國術語瑞士法郎遠期報價

• S($/SFr) = 1.0018
Example of reciprocal
• F1($/SFr) = 1.0047 calculations:
• F3($/SFr) = 1.0104 1 / 1.0018 = 0.9982
• F6($/SFr) = 1.0193 1 / 0.9928 = 1.0018
European term forward quotations are the reciprocal of the American term
quotes 歐洲術語遠期報價是美國術語報價的倒數
• S(SFr/$) = 0.9982
• F1(SFr/$) = 0.9953
• F3(SFr/$) = 0.9897
• F6(SFr/$) = 0.9811

© McGraw Hill 5-3

 Forward Premium 遠期溢價
Common to express the premium or discount of a forward rate as
an annualized percentage deviation from the spot rate 通常表示遠
期匯率的溢價或折價為與即期匯率的年化百分比偏差

For example, suppose the € is appreciating from S($/€) = 1.1321

to F180($/€) = 1.1389.
The 180-day forward premium is given by

F180($/€) – S($/€) 360 1.1389 – 1.1321

f180,€v$ = × = ×2
S($/€) 180 1.1321

= 0.0120, or 1.20%
© McGraw Hill 5-3
 Forward Cross-Exchange Rates

FN ( j $)
FN ( j k )=
FN ( k $)

F ($ k )
FN ( j k )= N
F ($ j )
N

© McGraw Hill 5-3

Non-Deliverable Forward Contracts 不可交割的遠期合約

Due to government-instituted capital controls, currencies of some emerging

market countries are not freely traded 由於政府制定的資本管制，一些新興市
場國家的貨幣不能自由交易
• Not possible to obtain these currencies offshore in the spot market to settle a
forward position. 不可能在現貨市場獲得這些離岸貨幣來結算遠期頭寸。
• For many of these currencies, trading in non-deliverable forward (NDF)
contracts exists. 對於許多這些貨幣，存在不可交割遠期（ N D F ）合約
的交易。
• An NDF contract, unlike a deliverable forward (DF), is settled in cash at the
difference between the spot exchange on the maturity date of the contract and
the NDF rate times the notional amount of the contract. 與可交割遠期合約
（ D F ）不同， N D F 合約在合約到期日的現貨交易所與 N D F 匯率乘
以合約名義金額之間的差額以現金結算。

© McGraw Hill 5-3

 Problems
 Suppose Dow Chemical receives quotes of $0.009369-71 for the yen and
$0.03675-6 for the Taiwan dollar (NT$).
a. How many U.S. dollars will Dow Chemical receive from the sale of
¥50 million?
b. What is the U.S. dollar cost to Dow Chemical of buying ¥1
billion?
c. How many NT$ will Dow Chemical receive for U.S.$500,000?
d. How many yen will Dow Chemical receive for NT$200 million?
e. What is the yen cost to Dow Chemical of buying NT$80
million?
 Problems
2. Use the most current American term quotes to calculate a cross-rate
matrix for the euro, Swiss franc, Japanese yen, and the British pound.
¥ SF $
Euro 1.3112
Japan (100) 0.9498
Switzerland 0.8470
UK 1.9077

3. Given the following information, what are the NZD/SGD currency

against currency bid-ask quotations?
American Terms European Terms
Bank Quotations Bid Ask Bid Ask
New Zealand dollar 0.7265 0.7272 1.3751 1.3765
Singapore dollar 0.6135 0.6140 1.6287 1.6300
 Problems
Assume you are a trader with Deutsche Bank. From the quote screen
on your computer terminal, you notice that Dresdner Bank is quoting
€0.7627/$1.00 and Credit Suisse is offering SF1.1806/$1.00. You learn
that UBS is making a direct market between the Swiss franc and the
euro, with a current €/SF quote of 0.6395. Show how you can make a
triangular arbitrage profit by trading at these prices. (Ignore bid-ask
spreads for this problem.) Assume you have $5,000,000 with which to
conduct the arbitrage. What happens if you initially sell dollars for
Swiss francs?