Given bid–offer quotes for three currencies, spot a triangular arbitrage and work out the profit it yields
The idea
Triangular arbitrage exploits a dealer's cross rate that is out of line with the cross implied by two other pairs. To build A/C from A/B and B/C, multiply so the common currency cancels: implied bid is bid × bid and implied offer is offer × offer. If the common currency sits in the same position in both quotes, invert one first, remembering that inversion swaps the sides. Arbitrage exists only if the dealer's bid exceeds the implied offer or the dealer's offer is below the implied bid. Overlapping ranges leave nothing to exploit. Profit comes from trading round the triangle at the correct side each time, starting and ending in the same currency.
In the app: 2 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.
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