Question

The following exchange rates are available to you. (You can buy or sell at the stated rates.)

SGD/USD		1.65
USD/CHY		0.16
SGD/CHY		0.30

Assume you have an initial USD 12,000.  Can you make a profit via triangular arbitrage?  If so, show the steps and calculate the amount of profit in USD.

Answer 1

Solution-

Initial USD= $12000

1 USD= SGD 1.65

1 CHY= USD 0.16

1 CHY = SGD 0.30

STEP 1:

Sell USD 12000 to buy SGD

To execute above transaction , exchange rate is 1 USD = SGD 1.65

Thus $12000* SGD 1.65= SGD 19800

Now we have SGD 19800

STEP 2:

Sell SGD 19800 to buy CHY

To execute above transaction , exchange rate is 1 CHY = SGD 0.30

Thus SGD 19800/CHY 0.30= CHY 66000

Now we have CHY 66000

STEP 3:

Sell CHY 66000 to buy USD

To execute above transaction, exchange rate is 1 CHY = 0.16 USD

Thus CHY 66000* USD 0.16= USD 10560

Therefore by using traingular arbitrage , we make loss ( USD 10560 - USD 12000) = USD 10560