Can someone PLEASE confirm this for me… my ‘shortcut’ is basically that when I come across a triangular arbitrage problem, I’ve been setting up all the currency bid-ask spreads (so taking reciprocal and switching them if need be) so that I would always have to multiply through to convert currencies. I then always multiply at the bid. (as this is the rate leaving me ‘worse’ off) one problem is i sometimes don’t know exactly which order to convert in, so I do it both ways (around the triangle) and use whichever one gave me the positive arbitrage profit much appreciated in advance
thats what i do. start at one end and go both ways…
Don’t be confused about the bid ask spread, just use the one that gives you lower value… Remember like you go to money changer…
the way you go around the triangle is determined by what you want buy and sell, you effectively wanna buy the underpriced currency, and sell the overvalued one. so if the euro is overvalued (eg relative to the yen) and at the top of the triangle you have US, and assuming euro is on the right side you would sell dollars to get euros, and then with the euros you got, you would sell them to get yen. and finally you would end up back at the top and sell the yen t get US, you should have a profit.
as for the bid ask spread and whic rate to choose , they way i think about is that whether im buying or selling, im ALWAYS getting the worst deal.
how long does this question take you guys? I get it right but takes me about 10min! I doubt i would actually do it if it is on the exam
sumz Wrote: ------------------------------------------------------- > how long does this question take you guys? I get > it right but takes me about 10min! I doubt i would > actually do it if it is on the exam I can do one of these questions in 2 minutes flat with my method: 1) Draw the Triangle 2) Place your starting currency at the lower left point (most likely USD) 3) Place the other two currencies at the other points 4) Go around the triangle converting your starting currency into the other two currencies and back into the home currency AT THE WORST RATE (if given the Bid/Ask just use the rate that gives you less of the converted currency) 5) If you get a negative value then go the other way around the triangle Booom goes the dynamite Hasn’t failed me once.
Chuckrox8 Wrote: ------------------------------------------------------- > sumz Wrote: > -------------------------------------------------- > ----- > > how long does this question take you guys? I > get > > it right but takes me about 10min! I doubt i > would > > actually do it if it is on the exam > > I can do one of these questions in 2 minutes flat > with my method: > > 1) Draw the Triangle > 2) Place your starting currency at the lower left > point (most likely USD) > 3) Place the other two currencies at the other > points > 4) Go around the triangle converting your starting > currency into the other two currencies and back > into the home currency AT THE WORST RATE (if given > the Bid/Ask just use the rate that gives you less > of the converted currency) > 5) If you get a negative value then go the other > way around the triangle > > Booom goes the dynamite > > Hasn’t failed me once. +1