Explin the triangular arbitrage, Financial Management

Assignment Help:

What is triangular arbitrage?  What is a condition that will give increase to a triangular arbitrage opportunity?

Answer:  Triangular arbitrage is the method of trading out of the U.S. dollar into a second currency, after that trading it for a third currency that is in turn traded for U.S. dollars.  The aim is to earn an arbitrage profit through trading from the second to the third currency while the direct exchange among the two is not in alignment along with the cross exchange rate.

So many, but not all, currency transactions undergo the dollar. Some certain banks specialize in making a direct market among non-dollar currencies, pricing at a narrower bid-ask spread as compared to the cross-rate spread. However, the implied cross-rate bid-ask quotations impose a discipline on the non-dollar market makers.  If their direct quotes are not constant along with the cross exchange rates, a triangular arbitrage profit is possible.


Related Discussions:- Explin the triangular arbitrage

Bankruptcy and bondholder rights, The holder of a corporate debt inst...

The holder of a corporate debt instrument is preferred to equity shareholders in the bankruptcy proceedings. However, secured/senior creditors are preferred to no

Analysis of operations, You must analyze the operating performance of your ...

You must analyze the operating performance of your company. You will use ratio analysis and primarily using Liquidity, Profitability and Working Capital ratios. You will use a g

Valuing semi-annual cash flows, In all previous illustrations, we ass...

In all previous illustrations, we assumed that coupon payments are paid on annual basis. However, most of the bonds carry interest payment semi-annually. Semi-ann

Operating cycle of company, calculate the operating cycle of company which ...

calculate the operating cycle of company which gives the following details relating to its operations. Particular raw material consumption per annum 842000. Annual cost of producti

Define exchange exposure of company affect by exchange rate, Assume that yo...

Assume that your company has an equity position in a French firm. Explain the condition under which the dollar/franc exchange rate uncertainty does not comprise exchange exposure f

Factors affecting choice of a maximum cash balance amount, Explain the fact...

Explain the factors affecting the choice of a maximum cash balance amount. The maximum cash balance amount is regulated by available investment opportunities, the expected payb

Explain about the market-based and bank-based systems, Explain about the ma...

Explain about the market-based and bank-based systems. A clear distinction between market-based in USA and UK and bank-based systems as in Germany, Japan and France define by s

Explain how bank eliminate the currency exposure, Banks find it essential t...

Banks find it essential to accommodate their client’s requirements to buy or sell foreign exchange forward, in many examples for hedging purposes.  How can the bank eliminate the c

Public corporations ought to tender audited financial statem, What are some...

What are some of the government requirements imposed on a public corporation that are not imposed on a private, closely held corporation? Public corporations ought to tender au

A-/a3, This is usually the third- or fourth-highest rating that a rating ag...

This is usually the third- or fourth-highest rating that a rating agency allocates to a security or insurance carrier. It is frequently the lowest investment-grade rating, but it i

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd