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

Advantage of mutual funds, Advantage of mutual funds Mutual Funds are a...

Advantage of mutual funds Mutual Funds are advantageous to individual investors in relation to their direct involvement in investment portfolio activity covering the following

Working capital, 5 Define risk. Examine the need for assessing the risks in...

5 Define risk. Examine the need for assessing the risks in a project.

Portfolio Management, Portfolio Project The purpose of this project is to h...

Portfolio Project The purpose of this project is to help you to gain an understanding of how the stock market works and of the relationship between theory and practice. You are gi

efficient variance reduction, Assume we are in the midst of the financial ...

Assume we are in the midst of the financial crisis in October 2008. Your firm is considering the purchase of a 10 year put option on the S&P 500 Index. You are analyzing the pricin

Features of capital budgeting decisions, Q. Features of Capital Budgeting D...

Q. Features of Capital Budgeting Decisions? Features of Capital Budgeting Decisions:- Moneys are invested in long-term assets. Moneys are invested in present times i

Show the transaction risk, Q. Show the Transaction risk? This is the ri...

Q. Show the Transaction risk? This is the risk occur on short-term foreign currency transactions that the actual income or cost may be different from the income or cost expecte

Random number generation, Random Number Generation Since we have said t...

Random Number Generation Since we have said that competitors' average price, quantity sold and cost behave in a random fashion but follow a normal distribution, if we want to d

Define the meaning of overtrading, Define the meaning of Overtrading Wh...

Define the meaning of Overtrading When  a  company  is  trading  at  a  very  fast  pace,  it  would be  generating  sales  on  credit  with  speed, so have a large volume of t

Determine the post-merger eps and post-mergershare price, Post-merger EPS a...

Post-merger EPS and post-mergershare price An estimated post-merger EPS can be calculated by: (Combined earnings) / total shares after merger An estimated post-merger s

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