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

Briefly define liquidity risk faced by a bank, Question: You have just ...

Question: You have just been appointed the secretary of the ALM Committee (ALCO) of ABN Bank. The ALCO members have some queries relating to the liquidity risk faced by the ban

Misconceptions about financial manmagement, What are the misconceptions abo...

What are the misconceptions about Financial Management?

Define the advantages of collecting early, What are the advantages of “coll...

What are the advantages of “collecting early” and how do companies attempt to do this? Money has time value.  The sooner cash is collected, the better.  Companies employ regional

Financial Analysis of Carrefour & Tesco Supermarkets, comparative analysis ...

comparative analysis on these two food retailing giants

Capital budgeting., definition and importance of capiyal budgeting

definition and importance of capiyal budgeting

Semi-strong-form of efficiency, Semi-Strong form level of Efficiency This...

Semi-Strong form level of Efficiency This level states that share prices reflects all available public information. (past and present information). If the market has achieved thi

Variable costs, V ariable Costs It is an expense that varies direct...

V ariable Costs It is an expense that varies directly with changes in business activities for example the cost of raw materials rise and decreases as the volume of producti

Define merger activity in the past decade affected assets, How has the merg...

How has the merger activity in the past decade affected the concentration of assets in the banking industry? A: Over the last decade, some commercial banks declined by twenty-o

Buy and hold - passive strategy, A simple passive strategy involves b...

A simple passive strategy involves building a portfolio and holding it through time. The coupons as well as the proceeds of matured bonds are just reinvested in new iss

Calculate the average interest rate , At the end of 1922, your great grandf...

At the end of 1922, your great grandfather (g.g.f.) established a trust fund to be used in order to help a later generation of the family obtain a university education. The ultimat

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