You sign on to your favorite FX trading platform, and observe the following exch

Question

You sign on to your favorite FX trading platform, and observe the following exchange rates. Assume that you can either BUY or SELL at these prices, and there are no commissions or other trading costs.

If you start with an initial investment of $1000 US Dollars and attempt to conduct Triangular Arbitrage, how much will you have (in USD) as a result of the transactions (in total, including your original $1000)? Provide your answer to the nearest $1.00.

Note that the quotes are given in the standard currency pairs format: "CAD/USD" is the price in USD of one Canadian Dollar.

Explanation / Answer

Triangular arbitrage is a trading strategy where we convert 1 currency into other, then into third currency and finally back to the 1st currency.

Here we first convert usd to gbp 1000*0.6474 = 647.4 pounds

Then pound into cad = 647.4*1.8783 =1216.0114 cad

Now cad into usd = 1216.0114*0.8981 = 1092.1USD

So the gain is 92.1$ assuming 0 transaction costs.

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