Scribd
Upload
36 views

Ricardo Palma University: Kelly Milagros, Orozco Rosales August, 2020 - Lima, Perú

This document summarizes an exercise on triangular arbitrage from a corporate finance course taught by Professor Carlos González Taranco at Ricardo Palma University. The exercise looks at the possibility of arbitrage between the Peruvian sol, US dollar and Euro. It finds that arbitrage is possible based on differences in cross rates and spot market quotations. Calculating the triangular arbitrage, starting with S/1,000,000 and exploiting the exchange rate differences, results in a final amount of S/1,085,401.75 and an arbitrage profit of S/85,401.75.

Uploaded by

Kelly Milagros Orozco Rosales
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
36 views

Ricardo Palma University: Kelly Milagros, Orozco Rosales August, 2020 - Lima, Perú

This document summarizes an exercise on triangular arbitrage from a corporate finance course taught by Professor Carlos González Taranco at Ricardo Palma University. The exercise looks at the possibility of arbitrage between the Peruvian sol, US dollar and Euro. It finds that arbitrage is possible based on differences in cross rates and spot market quotations. Calculating the triangular arbitrage, starting with S/1,000,000 and exploiting the exchange rate differences, results in a final amount of S/1,085,401.75 and an arbitrage profit of S/85,401.75.

Uploaded by

Kelly Milagros Orozco Rosales
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

Ricardo Palma University

Faculty: Economic and Business Science

School: Global Business Administration

Professor: Carlos, González Taranco

Curso: Corporate Finance

Group: 1

TRIANGLE ARBITRAGE

Author

Kelly Milagros, Orozco Rosales

August, 2020 – Lima, Perú

2020-I
EXERCISE

1. Assuming that you have an initial amount of S/. 1’000,000 and given following
information:

PEN/USD = 3.40
USD/EUR = 1.10864
PEN/EUR = 3.85

a) Evaluate triangular arbitrage possibility.


I. (PEN/EUR)/(USD/EUR)=PEN/USD= 3.4727
II. (PEN/EUR)/(PEN/USD)=USD/EUR=1.1324
III. (PEN/USD)/(USD/EUR)= PEN/EUR=3.7694

In this case, exist the opportunity business because cross rate and the spot market
quotations are different.
PEN(strong)/USD(weak) = 3.40 ≠ 3.4727
USD(strong)/EUR(weak)= 1.10864 ≠ 1.1327
PEN(weak)/EUR(strong) = 3.85 ≠ 3.7694

b) Calculate triangular arbitrage.

S/ PEN  1. PEN USD


2. USD EUR
3. EUR  PEN

 S/ 3.4 / $1.01864/EUR = S/ 3.4 x 1.01864/EUR = S/3.7694/EUR


 S/1’000,000/(S/ 3.85/EUR)=259740.26 EUR
 259740.26 EUR x ($1.10864/EUR)= $287958.44
 $287958.44 x S/ 3.7693/USD=S/ 1085401.75
 259740.26 EUR x ($1.10864/EUR)= $287958.44

c) Calculate benefit obtained.

Final amount= S/ 1085401.75

Initial amount= S/1’000,000

Arbitrage profit=S/85401.75

You might also like