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Basic Question 13 of 19

Calculate the profit (in USD) on a triangular arbitrage opportunity as follows: start with $1,000, 000, buy Australian dollars at AUD1.95/$, buy New Zealand dollars at NZD1.29/AUD, buy U.S. dollars at NZD2.38/$.
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User Contributed Comments 1

User Comment
mtsimone AU/US * NZ/AU = 1.95AU/1US * 1.29NZ/1AU.
AUs cancel, so (1.95 *1.29NZ)/1US = 2.551NZ/US ask.
2.551ask/2.38ask = 1.056933 round trip - 1 inv = arb.
I have to try to keep it simple...
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Andrea Schildbach

Learning Outcome Statements

calculate and interpret the bid-ask spread on a spot or forward foreign currency quotation and describe the factors that affect the bid-offer spread;

identify a triangular arbitrage opportunity and calculate its profit, given the bid-offer quotations for three currencies;

CFA® 2025 Level II Curriculum, Volume 1, Module 8.