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

Evolution of securitization, Securitization is a financial innovati...

Securitization is a financial innovation born out of the necessity the savings and loan associations of the United States of America face to save themselves from im

Capital structure, name the concept which increases the return on equity sh...

name the concept which increases the return on equity shares by changing the capital structure of the co.

Cash flows from portfolio of us standard mortgages, The cash flows ...

The cash flows from a portfolio of US standard mortgages have the characteristic of being uncertain. The cash flows from the mortgage consists of three comp

Public finance, explain in detail the primary function of taxation in relat...

explain in detail the primary function of taxation in relation to public fianace

What is a financial ratio, What is a financial ratio? A financial rati...

What is a financial ratio? A financial ratio is a number that convey the value of one financial variable relative to another.  Put more easily, a financial ratio is the final

Find the profit earned by firm in equilibrium, Suppose that Harry and Steve...

Suppose that Harry and Steven make their living selling contraband at opposite ends of a town that is 1 mile long. Because it's a crowded city, the citizens use taxi-cabs for trans

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:

What do you mean by interest rate swap, What do you mean by Interest rate s...

What do you mean by Interest rate swap? Explain the various types of interest rate swap Meaning: It is an arrangement where by one party exchange one set of interest rate paymen

The safety margin, Norfolk Ltd is specialized in producing & selling air co...

Norfolk Ltd is specialized in producing & selling air conditions.  In 2010, the manufacturing cost per unit included:

Acquisition strategy, T he acquisition strategy The most important str...

T he acquisition strategy The most important strategic consideration is the size of the acquisition. The completion of smaller series should be considered in the beginning tha

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