Question

**Please show work so I can learn the proper steps
Also this is a 2 part question.

Use the following 3 quotations for the following 3 questions on triangular arbitrage

Quotation 1: AUD: USD0.74942
Quotation 2: USD: JPY100
Quotation 3: AUD: JPY84

From the first 2 quotations, what is the crossed rate for AUD1 in JPY?

What is the correct complete trading direction for the arbitrage?

a. AUD----USD----AUD---JPY
B. AUD----USD---JPY----AUD
C. AUD----JPY----USD---AUD
D. AUD----JPY----USD
E. JPY----USD----AUD---USD
F. JPY----USD----AUD

Answer 1

1. The CROSS RATE for :

AUD/JPY = 74.942

Now we need to find JPY/AUD = 1/ 74.942 = 0.0133

2. Triangular Arbitrage is:

The arbitrage profit will be generated by following the direction of :

AUD-USD-JPY-AUD:

Let us start with 100AUD:

Now cOnvert AUD into USD ;

WE GET: AUD/USD = 0.74942

AUD INTO USD is = 1/0.74942 * 100 = USD 133.43

USD INTO JPY = 1/100 * 133.43 = 1.334 JPY

NOW CONVERT JPY INTO AUD:

1.334 JPY * 84 =AUD 112.08668

So, we profit from this direction ( 112.08668 - 100) = AUD 12.08668

Correct option is option B.