Question

1 unit of Currency A costs 0.201 units of Currency B, 1 unit of Currency B costs 3.92 units of Currency C, and 1 unit of Currency A costs 0.795 units of Currency C. Assume that you are starting out with 1,000,000 units of Currency A and that there are no transaction costs. How much money will you make in one set of triangular arbitrage transactions? Round to the nearest unit of Currency A.

Answer 1

1 unit of currency A = 0.201 of Currency B

1 unit of currency B = 3.92 of Currency C

1 unit of currency A = 0.795 of Currency C

If there is 1,000,000 units of currency A, it can be converted into currency B where currency B would be 201,000. Now it can be converted to currency C where currency C would be 201,000 * 3.92 = 787,920

Or 1,000,000 units of currency A can directly be converted into currency C for 1,000,000 * 0.795 = 795,000

You can make 795,000 - 787,920 = 7,080 in arbitrage if there is no transaction cost.

answered by: anonymous