Which of the following is an example of triangular arbitrage initiation?
A) buying a currency at one bank's ask and selling at another bank's bid, which is higher than the former bank's ask.
B) buying Singapore dollars from a bank (quoted at $.55) that has quoted the South African rand (SAR)/Singapore dollar (S$) exchange rate at SAR2.50 when the spot rate for the rand is $.20.
C) buying Singapore dollars from a bank (quoted at $.55) that has quoted the South African rand/Singapore dollar exchange rate at SAR3.00 when the spot rate for the rand is $.20.
D) converting funds to a foreign currency and investing the funds overseas.

Question

Quizplus · Accepted Answer

Triangular arbitrage involves exploiting discrepancies in the exchange rates between three currencies. In option C, the implied SAR/S$ rate from the given USD/S$ and USD/SAR rates is different from the quoted SAR/S$ rate, indicating an arbitrage opportunity.

Which of the Following Is an Example of Triangular Arbitrage