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7 June, 22:14

The New Zealand dollar to U. S. dollar exchange rate is 1.35 , and the British pound to U. S. dollar exchange rate is 0.61. If you find that the British pound to New Zealand dollar were trading at 0.54 , what would be the riskless profit per U. S. dollar invested? The riskless profit is $

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  1. 7 June, 23:51
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    The riskless profit is $0.2 per US dollar invested.

    Explanation:

    New Zealand dollar to US dollar exchange rate is 1.35

    1 US dollar = 1.35 New Zealand dollars

    1 New Zealand dollar = 0.54 pounds

    Calculate the number of pounds that one can buy with 1.35 New Zealand dollars -

    Number of pounds = 0.54 * 1.35

    = 0.729 pounds

    The number of pounds that one can buy with 1.35 New Zealand dollars is 0.729 pounds.

    1 US dollar = 0.61 pounds

    1 Pound = (1/0.61) US dollars

    1 Pound = $1.64

    Calculate the number of US dollars that one can buy with 0.729 pounds -

    Number of US dollars = 0.729 * 1.64 = $1.2

    The number of US dollars that one can buy with 0.729 pounds is $1.2

    It can be seen that investing 1 US dollar and then cross conversion leads to a return of $1.2.

    Riskless profit = $1.2 - $1 = $0.2

    Therefore, The riskless profit is $0.2 per US dollar invested.
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