Triangle arbitrage involves taking advantage of price discrepancies between three separate currency exchange transactions in order to make a profit. It is not illegal in the U.S., does not prevent the currency markets from obtaining equilibrium, can exist in both spot and futures markets, and involves more than just differences in exchange rates between markets.

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Triangle Arbitrage

Question 16

Multiple Choice

Triangle arbitrage:

A) is illegal in the U.S.
B) prevents the currency markets from obtaining equilibrium.
C) is a profitable opportunity involving three separate currency exchange transactions.
D) opportunities can exist only in the forward markets.
E) is based solely on differences in exchange rates between spot and futures markets.

Correct Answer: