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

CAD 1 = USD 0.6732/0.6741

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

The following quote is available in Zurich.

CAD 1 = AUD 0.8895/0.8915

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)