Question

The exchange rates in New York for $1 are Can$1.0929 or £.7247. In Toronto, Can$1 will buy £.6721. How much profit can you earn on $8,000 using triangle arbitrage?

Answer 1

1) Convert $8,000 in Canadian dollar at $1 = Can$1.0929

Therefore, Amount = Can$1.0929*8,000

Amount in Canadian Dollars = Can$8,743.2

2) Now convert this amount into euros at Can$1 = Euro0.6721

Amount in Euros = Euro0.6721*8,743.2

Amount in Euros = Euro5,876.30

3) Now convert it back into dollars at Euro 1 = $1/0.7247

Amount in Dollars = $5,876.30/0.7247

Amount in Dollars = $8,108.60

Profit using Triangular Arbitrage = 8,108.60 - 8,000

Profit using Triangular Arbitrage = $108.60