Question

Assume the following information:

USD/AUD, bid/ask: 0.68 / 0.72

USD/MXP, bid/ask: 0.072 / 0.075

MXP/AUD, bid/ask: 8.17 / 8.32

Assume you have 1 million USD to conduct one cycle of triangular
arbitrage. What will be your profit from implementing this
strategy? Remember to pay careful attention whether you're trading
at the bid or the ask with the bank.

Answer #1

For completing the one cycle of triangular to gain arbitrage we use following process :-

Currently we have $ 10,00,000 /-

Now we will buy MXP at ask rate (As the rate is for MXP) @ 0.075

So MXP we will have = $10,00,000/MXP0.075

= MXP 1,33,33,333.33

Now we will buy AUD at ask rate @ 8.32.

So AUD we will get = MXP 1,33,33,333.33/AUD 8.32

= AUD 16,02,564.10

Now we will sale AUD at Bid rate (Since the rate is for Aud and not USD) @ 0.68

So USD we will get = AUD 16,02,564.1 * USD 0.68

= USD 10,89,743.59

So Arbitrage Gain = USD 10,89,743.59 - USD 10,00,0000

= USD 89,743,59

**Hence Arbitrage Gain = USD 89,754.59**

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Construct cross-rate for bid & ask prices
IF dollar-euro exchange rate is USD1.25 = EUR1.00 and the
dollar-Yen exchange rate is JPY200 = USD1.00. What is the EUR-JPY
cross rate?
USD equivalent
Country
BID
ASK
Switzerland (Franc) CHF
$0.65/CHF
$0.68/CHF
Euro €
$1.15/€
$1.2/€
Triangular Arbitrage
Helen Depp, who trades at an FX cubicle in a big bank in UK
notices the following exchange rates of the USD per pound and USD
per euro.
$1.2195/€ or €0.82/$
$1.2262/£ or
£0.8155/$...

Assume the following information:
Exchange rate of Singapore dollar in USD = 0.32 USD/SGD
Exchange rate of pound in USD = 1.45 USD/GBP
Exchange rate of pound in Singapore dollars = 4.88 SGD/GBP
If you have 1 million USD to conduct one cycle of triangular
arbitrage, what will be your profit?

Assume the following information:
Exchange rate of Singapore dollar in USD = 0.32 USD/SGD
Exchange rate of pound in USD = 1.49 USD/GBP
Exchange rate of pound in Singapore dollars = 4.8 SGD/GBP
If you have 1 million USD to conduct one cycle of triangular
arbitrage, what will be your profit?

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