Assume the following exchange rates: $1 = nz$3, nz$1 = mxp2, and $1 = mxp7. given this information, as you and others perform triangular arbitrage, the exchange rate of the new zealand dollar (nz) with respect to the mexican peso (mxp) should and the exchange rate of the mexican peso (mxp) with respect to the u. s. dollar should a. appreciate; depreciate b. remain stable; appreciate c. appreciate; appreciate d. depreciate; depreciate

c. Appreciate; Appreciate

Explanation:

Triangular arbitrage is the act of taking an opportunity resulting from a pricing discrepancy among three different currencies when the currency's exchange rates do not exactly match up

This cases are very rare and for a quite short period of time so there are very few traders who takes the advantange of them.

Lets study th given cases here:

A) NZ dollar Versus Mexican Peso

The exchage rate is 1NZ$= 2 Mexican Pesos (MXP)

But if we apply the triangular arbitrage:

1 NZ dollar = 0.3333 US$

and we know tha 1 US$= 7 Mexican Pesos (MXP

Then 1 NZ dollar = 0.3333* 7 MXP= 2.333 MXP

So the NZ dollar appreciates

B) MXP Versus U$S

The exchage rate is 1 MXP= (1/7) U$S

But if we apply the triangular arbitrage:

1 MXP = 0.5 NZ

and we know tha 1 NZ= 0.333 US$

Then 1 MXP = 0.5* 0.333 U$S= 0.166 U$S

So the MXP appreciates

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