Question

FOR THE WHOLE HOMEWORK, YOU CAN USE 4 NUMBERS AFTER DECIMAL PLACE IN YOUR CALCULATION.

Use the following 3 quotations for the following 3 questions on triangular arbitrage

Quotation 1: AUD: USD0.74942

Quotation 2: HKD: USD0.12896

Quotation 3: HKD: AUD0.1800

What is the complete trading direction to conduct triangular arbitrage in this situation?

A. USD ==> AUD ==> HKD

B. HKD ==> USD ==> AUD

C. USD ==> AUD ==> HKD ==> USD

D. HKD ==> USD ==> AUD ==> USD

E. AUD ==> USD ==> HKD ==> AUD

F. AUD ==> HKD ==> USD ==> AUD

Answer 1

With the help of the equations , we can calculated the profit from the triangular arbitrage,

For example, let is start with $1000,000 USD.

We convert the USD into AUD at the rate of AUD/USD = 0.74942

Upon conversion we get 749420 AUD. Upon converting the AUD into HKD at the rate of HKD/ AUD = 0.18,we get 134895.6 HKD. Now upon converting HKD into USD at the rate of KHD/USD =0.12896, we get $104602.6675 ( 134895.6 HKD / 0.12896)

So, we can make a profit of ($104602.6675 - $1000,000 = 46026.675)

So, the correct option is option C.