# Top 12 Triangular Arbitrage Questions You Need To Solve

TRIANGULAR ARBITRAGE:

Q.1) From following 3 quotes, examine if any arbitrage gains are possible and if yes, calculate the same for USD 1 million.

0.5591       UK Pound per USD

1.4521       Euro per UK Pound

0.8128       Euro per USD

(Ans.: 1,147 \$)

Q.2) From following 3 quotes, examine if any arbitrage gains are possible and if yes, calculate the same for SGD 1 million.

64.85         JPY per SGD

0.0113       CHF per JPY

0.7345       CHF per SGD

(Ans.: SGD 2,313/1 million SGD)

Q.3) Following rates are quoted:

55.5000 = 1 Pound in London

45.625 = 1 US\$ in Delhi

\$ 1.2182 = 1 Pound in New York

Are Arbitrage gains possible?

(Ans.: Yes. 1,448 Gain)

Q.4) The following spot rates are observed in N.Y. Forex market-

DEM/USD            1.6345/50

JPY/USD              125.35/45

In the Frankfurt market the JPY/DEM spot rate is being quoted at 74.65/85.

Is there an arbitrage opportunity? What transaction have to executed to it, if there is?

(Ans.: (a) Cross Rate 76.6667/76.7513, Gain 24,271)

Q.5) (a) In London a dealer quotes:

DEM/GBP Spot 3.5250/55

JPY/GBP Spot 180.80/181.30

(i)        What do you expect the JPY/DEM rate to be in Frankfurt?

(ii)      Suppose that in Frankfurt you get a quote JPY/DEM spot 51.1530/51.2550, is there an arbitrage opportunity?

(b)   Assume there are no transaction costs, what advantage can be drawn from the following quotes:

\$ 1.6012 = £ 1 in N.Y.

F Fr 4.9800 = \$ 1 in Paris

F Fr 7.8200 = £ 1 in London.

(Ans.: (a) Cross Rates 51.2835/51.4326, Gain 556 (b) Gain 19,690)

Q.6) A New York bank is quoting

USD/GBP: 1.7540/45 and CHF/USD: 1.5700/05

The CHF/GBP quote given by a London Bank is 2.7385/90

Can you make arbitrage gains? How?

(Ans.: Cross Rate 2.7538/2.7554 and Gain 5,396)

Q.7) USD/SEK Spot 6.0340/6.0370

USD/FRF 5.8445/5.8465

FRF/SEK 1.0265/1.0285

Find out the triangular arbitrage possibilities by using synthetic mechanism.

(Ans.: Cross Rate 1.0320/1.0329 and Gain 3,403)

Q.8) GBP/CHF Spot 4.8360/70

GBP/JPY Spot 190.90/191.30

What do you expect to get for CHF/JPY? Suppose a quote is available for CHF/JPY 39.3360/39.3670, what arbitrage possibility is opened up?

(Ans.: Cross Rate 39.4666/39.5575 and Gain 2,530)

Q.9) The following foreign exchange quotes are available in New York.

USD 1 = GBP 0.6542/0.6547

USD 1 = CHF 1.5530/1.5535

Calculate the cross currency quote for 1 GBP in terms of CHF.

The following quote is available in Zurich

GBP 1 = CHF 2.3722/2.3745

Compare this with the calculated cross currency quote and state whether arbitrage opportunity exists. Calculate the same (if any) for 1 million GBP.                  (March 2011)

(Ans.: (a) Cross rate 1GBP = CHF 2.3721/2.3747 (b) No Arbitrage)

Q.10) The following foreign exchange quotes are available in New York.

AUD 1 = USD 0.7602/0.7613

Calculate the cross currency quote for 1 CAD in terms of AUD.

The following quote is available in Zurich.

Compare this with the calculated cross currency quote and state whether arbitrage opportunity exists. Calculate the same (if any) for 1 million CAD.                 (Oct. 2011)

(Ans.: (a) Cross rate 1 CAD = AUD 0.8843/0.8867 (b) Gain 3,112)

Q.11) Swiss Exporter who sells to Denmark must sell Euros and Purchase Swiss Francs.

Available rates are:

CHF 1.7654 = 1 USD

EUR 1.1918 = 1 USD

EUR 0.6566 = 1 CHF

Should he use CHF EUR quote or cross exchange using USD quotes?

(Ans. Cross exchange rate would be EUR 0.6751 = 1 CHF whereas available rate is EUR 0.6566 = 1 CHF. The exporter has to buy CHF. He will go for cheaper rate. He will choose 0.6566 Rate)

Q.12) Bank X: EUR INR 68.00/68.30

Bank Y: 100 INR EUR 1.4550/1.4600

Calculate arbitrage, if any.

(Ans.: 2,828)

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