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 $0.55) that has quoted the South African rand (ZAR)/Singapore dollar (S$) exchange rate at ZAR2.50 when the spot rate for the South African rand is $0.20.
C) Buying Singapore dollars from a bank (quoted at $0.55) that has quoted the South African rand/Singapore dollar exchange rate at ZAR3.00 when the spot rate for the South African rand is $0.20.
D) Converting funds to a foreign currency and investing the funds overseas.

Question

Quizplus · Accepted Answer

Triangular arbitrage involves exploiting discrepancies between three currencies. In option C, the implied rate from the given exchange rates allows for a profit by converting currencies in a loop, starting and ending with the same currency.

Which of the Following Is an Example of Triangular Arbitrage