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

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

Quizplus · Accepted Answer

Triangular arbitrage involves exploiting discrepancies between three currencies. In option C, the exchange rates allow for a profit by converting currencies in a loop: USD to SGD to SAR and back to USD.

Which of the Following Is an Example of Triangular Arbitrage