On Schweser Econ Concept checkers question 4, how do you know to buy GBP first and then EUR. I went EUR GBP then USD. How do you know which direction to go?
I try one direction at random.
If I lose money, I try the other direction. (Note: this is not necessary if you have a single exchange rate for each pair; I try it only when I have bid/ask rates for each pair.)
There are ways to know, but it’s too much trouble for me to bother remembering them. This way is quick enough for me.
Thanks S2000 magician. It just takes time to do it one way and then another. I did get the right answer but spending that much time in it, would’ve killed me during the exam
The problem is the following
EUR/USD 0.7000 - 0.7010
USD/GBP 1.7000 - 1.7010
EUR/GBP 1.2000 - 1.2010
If you have an initial position of 1 mill USD, what is the potential profit arbritage from triangular arbritage?
Anyone with a faster way to get to the right order of currencies the first time?
ummm no actually you will have to do it both ways…
u can save time by just using the calculator and not writting everything but it would require some practice
or maybe perhaps u can find the cross eur/usd rate using the second and third rate and decide which to long and which to short
My pleasure.
Maybe you’re going about it inefficiently. Let’s use your data:
So, you’ll go either
USD ==> GBP ==> EUR ==> USD
or
USD ==> EUR ==> GBP ==> USD
For the first, you’ll multiply:
USD1,000,000 × (GBP1.0000/USD1.7010) × (EUR1.2000/GBP1.0000) × (USD1.0000/EUR0.7010)
=USD1,006,373.
If you were fortunate enough to start that way, you’re done: the answer’s USD6,373.
For the second, you’ll multiply:
USD1,000,000 × (EUR0.7000/USD1.0000) × (GBP1.0000/EUR1.2010) × (USD1.7000/GBP1.0000)
=USD990,841.
If you were unfortunate enough to start that way, you’d have to go the other way to find the answer.
Sorry, there’s no short-cut.
Magician is a legend
Magician is a legend
You exaggerate.
Thank you.
suspense:Magician is a legend
You exaggerate.
Thank you.
Pls find time to update your website
Thanks so much S2000 magician! This makes so much sense and much faster from what i was doing. You ROCK!!
S2000magician: Philly1616:Thanks S2000 magician.
My pleasure.
Philly1616:It just takes time to do it one way and then another. I did get the right answer but spending that much time in it, would’ve killed me during the exam.
Maybe you’re going about it inefficiently. Let’s use your data:
Philly1616:The problem is the following
EUR/USD 0.7000 – 0.7010
USD/GBP 1.7000 – 1.7010
EUR/GBP 1.2000 – 1.2010
If you have an initial position of 1 mill USD, what is the potential profit arbritage from triangular arbritage?
So, you’ll go either
USD ==> GBP ==> EUR ==> USD
or
USD ==> EUR ==> GBP ==> USD
For the first, you’ll multiply:
USD1,000,000 × (GBP1.0000/USD1.7010) × (EUR1.2000/GBP1.0000) × (USD1.0000/EUR0.7010)
=USD1,006,373.
If you were fortunate enough to start that way, you’re done: the answer’s USD6,373.
For the second, you’ll multiply:
USD1,000,000 × (EUR0.7000/USD1.0000) × (GBP1.0000/EUR1.2010) × (USD1.7000/GBP1.0000)
=USD990,841.
If you were unfortunate enough to start that way, you’d have to go the other way to find the answer.
Sorry, there’s no short-cut.
Magician is a legend
AGREED!!!
This is 10X better than the crap Schweser put on their books.
S2000magician: suspense:Magician is a legend
You exaggerate.
Thank you.
Pls find time to update your website
Done.
Triangular arbitrage is here: http://financialexamhelp123.com/triangular-arbitrage/.
Thanks so much S2000 magician! This makes so much sense and much faster from what i was doing. You ROCK!!
Glad I could be of help.