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  • 3 Point Arbitrage.f01

    Загружено:

    Hameed Wesabi
    15 просмотров7 страниц
    Triangular (3-Point) exchange arbitrage exploits small discrepancies between exchange rates quoted in different financial centers. By simultaneously buying one currency against another currency 1, selling that currency against a third currency 2, and then selling currency 2 against the original currency 1, a riskless profit can be made if the implied cross rate differs from the direct cross rate quotation. The document provides an example where converting $1 million to British pounds through Swiss francs results in a $125,000 profit due to a cross rate misalignment that creates an arbitrage opportunity.

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    semester

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    Triangular (3-Point) exchange arbitrage exploits small discrepancies between exchange rates quoted in different financial centers. By simultaneously buying one currency against another currency 1, selling that currency against a third currency 2, and then selling currency 2 against the original currency 1, a riskless profit can be made if the implied cross rate differs from the direct cross rate quotation. The document provides an example where converting $1 million to British pounds through Swiss francs results in a $125,000 profit due to a cross rate misalignment that creates an arbitrage opportunity.

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    Attribution Non-Commercial (BY-NC)
    Скачайте в формате PPT, PDF, TXT или читайте онлайн в Scribd
    Отметить как неприемлемый контент
    15 просмотров7 страниц

    3 Point Arbitrage.f01

    Загружено:

    Hameed Wesabi
    Triangular (3-Point) exchange arbitrage exploits small discrepancies between exchange rates quoted in different financial centers. By simultaneously buying one currency against another currency 1, selling that currency against a third currency 2, and then selling currency 2 against the original currency 1, a riskless profit can be made if the implied cross rate differs from the direct cross rate quotation. The document provides an example where converting $1 million to British pounds through Swiss francs results in a $125,000 profit due to a cross rate misalignment that creates an arbitrage opportunity.

    Авторское право:

    Attribution Non-Commercial (BY-NC)
    Скачайте в формате PPT, PDF, TXT или читайте онлайн в Scribd
    Отметить как неприемлемый контент
    из 7

    Triangular (3-Point) Exchange

    Arbitrage
    Exchange arbitrage is the activity that unifies
    the foreign exchange market spatially. That is,
    it assures that the same exchange rates tend to
    rule at any moment in time, whether they are
    quoted by a London bank, a New York bank ,
    or a Singapore bank.

    Example

    DM/$

    New York
    Banks
    3.00

    Berlin
    Banks
    3.00

    Paris
    Banks
    NA

    $/FF

    0.25

    NA

    0.25

    FF/DM

    NA

    2.00

    2.00

    Equilibrium Conditions
    $/DM

    = $/FF * FF/DM
    $/FF = $/DM * DM/FF
    FF/DM = FF/$ * $/DM
    FF/$ = FF/DM * DM/$
    DM/$ = DM/FF * FF/$
    DM/FF = DM/$ * $/FF

    Example

    $/

    New York
    Banks
    1.80

    London
    Banks
    1.80

    Zurich
    Banks
    NA

    $ / SF

    0.20

    NA

    0.20

    SF /

    NA

    8.00

    8.00

    Tests for Cross Rate Alignment


    / SF = $ / * / SF
    0.20 < 1.80 * 0.125

    $ / = $ / SF * SF /
    1.80 > 0.20 * 8.00

    SF / = SF / $ * $ /
    8.00 < 5.00 * 1.80

    Solution
    $

    -------- -------- SF -------- $


    $ 1M / 1.80 = 555,555.56
    555,555.56 * 8.00 = SF 4,444,444.44
    SF 4,444,444.44 * 0.20 = $ 888,888.88
    Loss = $ 111,111.11

    Solution
    $

    -------- SF -------- -------- $


    $ 1M / 0.20 = SF 5,000,000
    SF 5,000,000 / 8.00 = 625,000
    625,000 * 1.80 = $ 1,125,000
    Profit = $125,000

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