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

Explain the rapid development of interest rate swap market, If the cost ben...

If the cost benefits of interest rate swaps would similarly be arbitraged away in competitive markets, what other descriptions exist to explain the rapid development of the interes

Relationship between spot rates and short-term forward rates, Assume ...

Assume that an investor invests $X in a 3-year zero coupon Treasury security. Three years from now, the total return received would be:

Calculate the cost of capital of organization, The following particulars re...

The following particulars relate to ABC Ltd. at the end of 2008: (i)  Rs. 500,000 equity shares of Rs. 10 each. Present dividend per share is Rs. 15; Market price Rs. 100 per sh

Financial management and materials department, Financial Management and Mat...

Financial Management and Materials Department The materials management is of utmost importance in a manufacturing firm and covers the areas such as procurement, storage, mainte

Cost of Capital, The Nu-Nu Brothers Inc. (NNBI) has the following capital s...

The Nu-Nu Brothers Inc. (NNBI) has the following capital structure, which it considers to be optional: Debt 25% Preferred Stock 15% Common Equity 60% NNBI''''s expected net income

Leverage, importance of Leverage

importance of Leverage

Company default rate on account receivable when its too low, Can a company ...

Can a company have a default rate on its accounts receivable that is too low?  Explain. A company might have a default rate on AR that would be considered too low if by liberal

Agency relationships, explain the relationship between shareholders and cre...

explain the relationship between shareholders and creditors

Total revenue change, Write an essay explaining that the quantities of good...

Write an essay explaining that the quantities of goods and services that we can produce are limited by both our available resources and by technology. Assume we want to increase

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