Suppose the GBP trades for CHF2.20279 in Zurich and USD1.62699 in London. The USD trades for CHF1.2755 in Zurich. Is there an arbitrage opportunity available for a currency trader? A) Yes, the trader can make USD0.06147 per USD invested. B) No, there is no arbitrage opportunity. C) Yes, the trader can make USD0.0930 per USD invested. D) Yes, the trader can make USD0.1827 per USD invested. It’s not with bid-ask quotes, but its the best I could do quickly.
A… It gets real tricky however when you have Bid - Ask quotes involved
A… same as bannis question?
Yep, we posted at the same time . . .
yeah same question - don’t be fooled by the different order of answer choices.
I feel so good now… 2 on 2 for the night. Who cares if I answerd the same question twice. I took the risk of getting both wrong too 
I get the difference as 0.0784 CHF/USD. Does the answer ask for the closest value or did I get something wrong in my calcs?
Usd to Gbp then to Chf then back to USd - (A)
what no is this question please? thanks
I am sorry but I just couldnt get the 0.06147 number. could someone help? Thanks
Start with 1 USD in London It makes 1 USD / 1.6299 (USD/GDP) = 0.614632 GDP Than convert it to CHF in Zurich: 0.614632 GDP * 2.20279 CHF / GDP = 1.353905 CHF Than convert it back to USD in Zurich: 1.353905 CHF / 1.2755 (USD/CHF) = 1.061470 USD So initially you had 1 USD, now you have 1.061470 USD. You gained the difference through arbitrage, ie 0.06147 USD
Apply “up the bid, down the ask” concept. It’s very easy and useful. 2.20279 chf/gbp = bid is from gbp to chf 2.20279, ask is 1/2.20279 gbp/chf 1.62699 usd/gbp = bid is from gbp to usd 1.62699 ask is 1/1.62699 usd/gbp 1.2755 chf/usd same concept. now draw a triangle and follow the arrow. One direction will give you 1.0614698, the other direction will give you 0.94209.
This isnt even in the same league as a question with bid-ask spreads (obviously).
I pray that we’ll have a Tri-Arb with bid-ask spread question…once you know how to do it they are easy points.
Thanks nicolargol and cfano1 for your detailed responses. This really helps.
cfano1 Wrote: ------------------------------------------------------- > Apply “up the bid, down the ask” concept. It’s > very easy and useful. > > 2.20279 chf/gbp = bid is from gbp to chf 2.20279, > ask is 1/2.20279 gbp/chf > 1.62699 usd/gbp = bid is from gbp to usd 1.62699 > ask is 1/1.62699 usd/gbp > 1.2755 chf/usd same concept. > now draw a triangle and follow the arrow. > One direction will give you 1.0614698, the other > direction will give you 0.94209. Can someone explain the “up the bid, down the ask” concept in greater detail?
I don’t know the whole up the bid down the ask deal. I just think of it as you always get the worse end of the deal. so if you’re dividing, divide by the big number, if you’re multiplying, multiply by the small number. correct me if I’m wrong, but i’ve been getting these right using this approach.
you’re 100% right. you’re always worse off- multiply by the smaller #, divide by the bigger one.
From the Schwser vedio (not exactly quote): Remember that you are always the loser. Whatever number got you less mony, that must be it.
Can you also do this, because it seems to work, but all the currency terms cancel out! (2.20279CHF/1GBP)*(1GBP/1.62699USD)*(1USD/1.2755CHF)=1.061470. Is it ok that the terms cancel out, and how do I know it’s in USD (other than that you told me) if the terms all cancel out? -Richard