Assume you can exchange $1 for either £1 or €.50 in the U.S.In the London market, you can exchange £1 for €.52.This situation creates an opportunity to profit immediately from which one of the following?

Question

Quizplus · Accepted Answer

This situation creates an opportunity for triangle arbitrage where an investor can make a profit by converting $1 to £1, then the £1 to € in the London market, and finally, convert the € back to $ in the US market. The profit can be made due to the difference in exchange rates between the currencies.

Assume You Can Exchange $1 for Either £1 or €