Assume you can exchange $1 for either £1.0 or €0.50 in the U.S.In the London market,you can exchange £1 for €0.52.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. By exchanging $1 for £1 in the US and then exchanging the obtained £1 for €0.52 in London, one can get €0.52 for $1, which is better than the direct exchange rate of €0.50 for $1. Triangle arbitrage involves taking advantage of pricing inconsistencies between three different currencies, and this scenario fits that definition. The other options do not apply to this situation.

Assume You Can Exchange $1 for Either £1