The ff quotes are given: Swiss franc/dollar = SFr1.5971/$ Australian dollar/Swiss franc = A$1.1450/SFr Australian dollar/US Dollar = A$ 1.8215/$ Is there an arbitrage opportunity? If yes, calculate the arbitrage profit starting with US$1.0m
$1,003,941.53 USD to SF to AD to USD
1$ -> 1.5971SFR -> 1.182867950 AUD -> 1.00394153 $ (1.00394153 - 1)*1m = 3941.53 riskless profit.
Got the same result. To calculate this I compare cross rate done AUD/CHF - 1.1450 with the one calculated ( AUD/USD / USD/CHF ) - 1.1405. Clear that I shoul sell the most expensive - this is sell CHF for AUD. Then the logic says I should buy CHF for USD and sell AUD for USD to make arbitrage free profit. Put in rates in the calculation and get the result… Does anybody do it in a faster way? Share the secret !
guys, this simple triangle thing at times i get it at time i dont: here are my concerns please 1. how do I know which of the three rates to use as the cross rate? 2. I know i have to sell (buy) the currency if it is overpriced (underpriced) but does the order matter? 3. In this case I know I have to seel CHF. Does it matter if I go USD - CHF - AUD - USD OR USD - AUD - CHF - USD. Tere seems to be a logic that doesn’t hold for me. I want to get out of going ‘lottery’ for the route. I wnt to know the logic for the exact order. 4. This becomes a maze when each of the rates has a bid and a spread. Assistaaaaance!!!
1$ -> 1.5971SFR -> 1.182867950 AUD -> 1.00394153 $ (1.00394153 - 1)*1m = 3941.53 riskless profit. How do u get the 1.18…AUD figure
- You can assume any pair as the cross rate, just choose one of 3, calculate, and compare with the one done. 2. The order of which pair to buy and which to sell does matter ! In your example USD-AUD-CHF-USD the mistake is that you buy CHF for AUD, but you should do the opposite (if you realized that AUD for CHF pair is overpriced - sell CHF for AUD, but not sell CHF for any other currency). Hope my explanaiton will help ( I tried to be clear
merci mon ami, Your response seems like a breath of fresh air …at the door. Let me take time off this subject…come back to it with your explanation …and hopefully i should be fine… au revoir