Question: Assume the following information for a bank quoting on spot exchange rates:

Exchange rate of Singapore dollar in U.S. $ = $ .32

Exchange rate of pound in U.S. $ = $1.50

Exchange rate of pound in Singapore dollars = S$4.50

Based on the information given, as you and others perform triangular arbitrage, what should logically happen to the spot exchange rates?

1. The Singapore dollar value in U.S. dollars should appreciate, the pound value in U.S. dollars should appreciate, and the pound value in Singapore dollars should depreciate.
2. The Singapore dollar value in U.S. dollars should depreciate, the pound value in U.S. dollars should appreciate, and the pound value in Singapore dollars should depreciate.
3. The Singapore dollar value in U.S. dollars should depreciate, the pound value in U.S. dollars should appreciate, and the pound value in Singapore dollars should appreciate.
4. The Singapore dollar value in U.S. dollars should appreciate, the pound value in U.S. dollars should depreciate, and the pound value in Singapore dollars should appreciate.

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