Question

Hubbard Bank has the following quotes You can buy a Euro for 23 pesos and sell a euro for 22.50 pesos You can buy a USD for 1.05 euros and sell a USD for 1.00 euros You can buy a USD for 22 pesos and sell a USD for 21 pesos Is there a possibility of triangular arbitrage? Assume you have $500,000

Answer 1

Assume you have $500,000

So you want to sale $500,000 and buy Euro.

Given rate = sell a USD for 1.00 euros

So you will get Euro 500,000

Now you want to sale Euro and Buy Pasos

Given rate = sell a euro for 22.50 pesos

500,000 * 22.50 = 11250000 Pasos

Now we want to buy USA = buy a USD for 22 pesos

11250000 / 22 = 511363.64

You invested $500,000 and you are getting $511,363.64

Profit = 11363.64 So yes, there is possibility of arbitrage.

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