If differences occur for FX rates between three or more currencies,FX dealers may perform:
A) locational arbitrage.
B) triangular arbitrage.
C) cross arbitrage.
D) speculative arbitrage.

Question

Quizplus · Accepted Answer

If differences occur for FX rates between three or more currencies, FX dealers may perform triangular arbitrage, which involves taking advantage of exchange rate discrepancies between three different currencies to make a profit. This involves converting one currency into another, then into a third and finally back into the original currency, while taking advantage of any differences in exchange rates. Locational arbitrage involves taking advantage of differences in exchange rates between different geographic locations, while cross arbitrage involves taking advantage of differences in exchange rates between two currencies in different markets. Speculative arbitrage involves using financial instruments to take advantage of price differences in financial markets.

If Differences Occur for FX Rates Between Three or More