Use the following 3 quotations for the following 3 questions on triangular arbitrage Quotation 1: AUD:...

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Use the following 3 quotations for the following 3 questions on triangular arbitrage Quotation 1: AUD:...

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

B. AUD ==> USD ==> HKD ==> AUD

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Answer 1

Answer #1

AUD/ USD = 0.74942

HKD/ USD = 0.12896

HKD/ AUD = 0.18

Let us start with 1000,000 HKD. We can convert this into USD at the rate of HKD/USD = 0.12896 we get $77,54342.32

Upon conversion we get ,5811259.305 AUD at the rate of AUD/USD = 0.74752. Upon converting AUD into HKD at the rate of HKD/AUD = 0.18

WE GET ,

1046026.675 HKD. We can make a profit of 46026.675 HKD.

So, the correct direction for triangular arbitrage is HKD - USD- AUD - HKD

So the correct option is option A.

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Answer 2

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