# Dear Triangular arbitage

I have conquered you! Just in time! =D

haha - awesome. wish I could say the same. congratulations!

Congrats… I on the other hand, can never remember which to use, bid or ask…DAMN

remember “up the bid” “down the ask” principle.

Yeah I plan on winging this one on exam day. Way too specific and at the most there might be one question on it in a section that is not heavily weighted. No point in spending 4 hours on it now.

I dont fully understand the “up the bid, down the ask” trick. I believe when you are buying the denominator, you use the ask, and when you are buying the numerator you buy the bid???

http://www.youtube.com/watch?v=FElk-K1vb_I I watched this yesterday and it helped. Correct me if I’m wrong but say you have a situation like this: USD/GBP: bid - ask GBP/Yen: bid - ask Yen/USD: bid - ask If you start with \$1,000,00, you can convert the USD to either of the other 2, and then to the 2nd one and then back to USD. All you have to remember is that when converting say, from USD to GBP, you simple use the rate that’ll give you LESS GBP since the dealer always makes money off you. Same for converting from GBP to Yen, use the rate that causes you to end up with LESS Yen and again, same thing for Yen to USD. But how do we know that an arbitrage opportunity exists in the first place?

i’m hoping if they give us 1 of these, there is no bid/ask spread and they just give us one rate for each currency

CFAtime, thats usually the trick I use, whichever rate gives me less is the amount i stick with. As for showing the arb in the first place, you need to do the cross rates first to find out if one exists and which currency to convert into. But i do agree that they should forget the spreads, and this would make the questions very very simple.

athanas Wrote: ------------------------------------------------------- > CFAtime, thats usually the trick I use, whichever > rate gives me less is the amount i stick with. As > for showing the arb in the first place, you need > to do the cross rates first to find out if one > exists and which currency to convert into. > > But i do agree that they should forget the > spreads, and this would make the questions very > very simple. So in my example 3 (pairs of) rates are given, so say I choose the first 2 to get the cross rate bid and ask between USD and Yen, I have to compare that cross rate to the given USD/Yen rates and if they don’t match then arbitrage possible?

The way I remember it is when doing the currency conversions…use the one (bid or ask) that is always going to give you less of the currency. Just remember that the trader doing the arbitrage is always at the disadvantage when compared to the dealer.

okiew5 Wrote: ------------------------------------------------------- > The way I remember it is when doing the currency > conversions…use the one (bid or ask) that is > always going to give you less of the currency. > Just remember that the trader doing the arbitrage > is always at the disadvantage when compared to the > dealer. This really helped me out. I think I finally have currency arb. with bid/asks now. Thanks.

IF YOU MULTIPLY = USE BID IF YOU DIVIDE = USE ASK IT IS ALL ABOUT SETTING UP THE EQUATION CORRECTLY TO CANCEL OUT THE CURRECNY THAT YOU DO NOT WANT…IF YOU NEED TO MULTIPLY TO DO THIS THEN USE THE BID. IF YOU NEED TO DIVIDE TO CANCEL OUT, THEN USE THE ASK.

mcap11 - exactly. set up the algebra correctly, and when you multiply use the bid, and when you divide use the ask. it’s that simple.

Just realized posting on wrong topic