Assume you are a trader in foreign currencies and you

Assume you are a trader in foreign currencies and you


Subject: Business    / Finance   
Question

Question 4: Assume you are a trader in foreign currencies and you look for arbitrage. From the quote screen on your computer terminal, you observe the exchange rate quotations below. (Numbers should be rounded to 4 decimal places. Please note that your answers will be worthy zero mark if they do not include currency symbols, £, $, €.)

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Bank Quotations
    

Rate

Citi Bank :
    

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a. Explain what a triangular arbitrage is. What is a condition that will give rise to a triangular arbitrage opportunity? (1.5 marks)

b. What €/£ price will eliminate triangular arbitrage? (1 mark)

c. How you can make a triangular arbitrage profit by trading at these prices? What is the profit? Explain and discuss your calculations. (4 marks)

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