Triangular Currency Arbitrage. Assuming no transaction cost, A:You can buy a U.S. dollar for 10 pesos;The bank
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Triangular Currency Arbitrage.Assuming no transaction cost,
A:You can buy a U.S. dollar for 10 pesos;The bank will pay you 9 pesos for a U.S. dollar.
B:You can buy a U.S. dollar for .9 euros;The bank will pay you .8 Euros for a U.S. dollar.
C:You can buy a euro for 14 pesos.The bank will pay you 13 pesos for a euro.
Reorganize the above into $/peso (A), $/euro (B) and euro/peso (C) and identify if triangular arbitrage is possible. What is your trading strategy? Compute the triangular arbitrage profit starting with $1,000,000.
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