Question

Use the following 3 quotations for the following 3 questions on triangular arbitrage Quotation 1: AUD:...

Use the following 3 quotations for the following 3 questions on triangular arbitrage
Quotation 1: AUD: USD0.74942

Quotation 2: HKD: USD0.12896

Quotation 3: HKD: AUD0.1800
From quotation 1 and 2, what is the crossed rate for HKD1 in AUD ______

What is the complete trading direction to conduct triangular arbitrage in this situation?

If you start with USD 1 million and follow 1 round of arbitrage, how much in USD do you end up with (including your investment of 1 million)

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Homework Answers

Answer #1

0.74942 USD/AUD

0.12896 USD/HKD

AUD/HKD = 0.12896 / 0.74942 = 0.1720797417 AUD/HKD

Step 1: Convert $1million USD to HKD at 0.12896 USD/HKD

1 million / 0.12896 = 7,754,342.43176179 HKD

Step 2: Convert 7,754,342.43176179 HKD to AUD at 0.18 AUD/HKD

7,754,342.43176179 * 018 = 1,395,781.63771712 AUD

Step 3: Convert 1,395,781.63771712 AUD to USD at 0.74942 USD/AUD

1,395,781.63771712 * 0.74942 = $1,046,026.67493796

This is the USD we would end up if we exploit the triangular arbitrage.

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