Explin the triangular arbitrage, Financial Management

Assignment Help:

What is triangular arbitrage?  What is a condition that will give increase to a triangular arbitrage opportunity?

Answer:  Triangular arbitrage is the method of trading out of the U.S. dollar into a second currency, after that trading it for a third currency that is in turn traded for U.S. dollars.  The aim is to earn an arbitrage profit through trading from the second to the third currency while the direct exchange among the two is not in alignment along with the cross exchange rate.

So many, but not all, currency transactions undergo the dollar. Some certain banks specialize in making a direct market among non-dollar currencies, pricing at a narrower bid-ask spread as compared to the cross-rate spread. However, the implied cross-rate bid-ask quotations impose a discipline on the non-dollar market makers.  If their direct quotes are not constant along with the cross exchange rates, a triangular arbitrage profit is possible.


Related Discussions:- Explin the triangular arbitrage

Define implicit cost and explicit costs, Q. Define Implicit cost and explic...

Q. Define Implicit cost and explicit costs? Implicit cost and explicit costs: the implicit cost is the rate of return associated with the best invests opportunity for the firm

Relationship between bond price and time, Relationship between Bond Price a...

Relationship between Bond Price and Time   (If Interest Rates are Constant) The bond price changes as the bond moves closer to its maturity. If the bond is quoted

What do you signify by cost of capital, Q. What do you signify by Cost of C...

Q. What do you signify by Cost of Capital? What do you signify by 'Cost of Capital'? What is its meaning and what are the problems in determination of cost of capital? Ans.

Asset-backed and mortgage-backed securities, When financial assets or bonds...

When financial assets or bonds are pooled together and offered to the investors for receiving the inflow of funds from these underlying assets, they are termed as asset

Floating-rate securities that have adjustable quoted margin, Floaters ...

Floaters that can be classified under this head are: 1. Stepped Spread Floaters 2.  Extendible Reset Bonds

Future value of an annuity, Will you please give the defination of "Future ...

Will you please give the defination of "Future Value Of An Annuity"?

Evaluate consolidated income statement, The consolidated income statement...

The consolidated income statement for AB Group for the year ended 30 June 2010: (all amounts in the workings are in $000, unless stated otherwise)

Explain why accounting profits and cash flows, Explain why accounting profi...

Explain why accounting profits and cash flows are not the same thing. Stock worth depends on future cash flows, their riskiness and their timing.  Profit calculations don't con

Cash flow of reverse convertibles, (a) Let's presume that the firm may defa...

(a) Let's presume that the firm may default only on last coupon payment date and that when this take place stock price would be less than some predetermined price K at the expira

Calculate the wacc and irr, The capital structure of Wild West Inc. is as f...

The capital structure of Wild West Inc. is as follows: Debts: $5,000,000 (face value) bonds with coupon rate at 8.00% and current price at par Preferred shares: $2,000,000

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd