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Offline Anne

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Re: Solutions Triangular Arbitrage
« Reply #30 on: April 28, 2009, 09:21:18 pm »
Please find my homework attached.

Best regards, Anne

Offline Hendrik Sill

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Re: Solutions Triangular Arbitrage
« Reply #31 on: April 28, 2009, 09:29:59 pm »
Triangular Arbitrage

$-based spot market in London

$1= 108.84 Yen
$1= €0.85

Tokyo Spot Market

€1= 138.43 Yen

1) Calculate the implied rate (for London spot market)

108.84 Yen/ 0.87 Euro = €1
125.1034 Yen = €1

---> Euro is more expensive in Tokyo than in London (138.43 Yen vs 125.1034 Yen per Euro).

2) Triangular abitrage

The basic idea is to buy cheap and sell expensive, thus taking advantage of different prices on different markets, more precisely implied rates differing from quoted rates. However, this cannot be done with a single step. Therefore, while there is no business risk, there is in fact a so called execution risk meaning that as the order is being processed prices may change.

first step: Buy cheap

As mentioned above Euro is more expensive in Tokyo meaning we can buy Yen there at a lower price than in London. Thus we sell €1,000,000 in Tokyo.


---->€1,000,000*138.43 Yen/€= 138,430,000 Yen



second step: Sell Yen for Dollar in London

----> 138,430,000 Yen/108.84 Yen/$ = $ 1,271,866.961



third step: Sell expensive (sell dollar for Yen in London)

 $ 1,271,866.961/$1/€0.85 =€1,081,086.92

fourth step: Calculate arbitrage profit (substract the amount of money we started with from what we gained from our triangular arbitrage)

€1,081,086.92 - €1,000,000 = €81,086.92

By performing the triangular abitrage we gained a profit of €81,086.92


4) Exchange rates (taken from xe.com at 9:29 pm CET on April 28, 2009)

quoted rates

$1= 96.4266 Yen
$1= €0.76068

implied rate (Euro to Yen)
$1= (96.4266 Yen/$) / (0.76068 €/$)   
€1= 126.7437 Yen


Yours sincerely,
  Hendrik Sill
« Last Edit: April 30, 2009, 02:44:35 pm by Hendrik Sill »

Offline ena

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Re: Solutions Triangular Arbitrage
« Reply #32 on: April 29, 2009, 12:00:08 am »
best regards

Offline Muschallik

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Re: Solutions Triangular Arbitrage
« Reply #33 on: April 29, 2009, 09:09:00 am »
TASK 1:

Quoted rate in London:
1$ = 107.91Yen
1$ = 0.87€

implied rate:
107.91Yen / 0.87€ = 1   => 1€ = 124.03Yen


Quoted rate in Tokyo:
1€ = 128.03Yen

=> Buy cheap in London
=> Sell expensive in Tokyo

Triangular Arbitrage:

1.)  Sell 1,000,000€ in Tokyo at 128.05Yen/€:
=> 1,000,000 * 128.05 = 128,050,000Yen

2.) Convert 128,050,000Yen to $ in London:
=> 128,050,000 / 108 = 1,185,648.148$

3.) Buy cheap € in London at 0.9€/$:
=> 1,185,648.148 * 0.9 = 1,067,083.333€

Arbitrage: 1,000,000 - 1,067,083.333 = 67,083.333€
Interest Rate: 67.08%

TASK 2:

Exchange rates:
1$ = 140.960Yen
1$ = 1.11310€

Implied rate:
140.960 / 1.11310 = 1   => 1€ = 126.6373Yen

Quoted rate Tokyo:
1€ = 125.72Yen

=> Buy cheap in Tokyo
=> Sell expensive in London


 ;D

Best regards,
Julia Muschallik

Offline simone.klausmann

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Re: Solutions Triangular Arbitrage
« Reply #34 on: April 29, 2009, 11:49:23 am »
The solution is attached.

Best regards,
Simone Klausmann

Offline Chrizzo

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Re: Solutions Triangular Arbitrage
« Reply #35 on: April 29, 2009, 12:13:51 pm »
Please find the solution attached...

Best regards,
Christoph Schröder

Offline O. Krebs

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Re: Solutions Triangular Arbitrage
« Reply #36 on: April 29, 2009, 12:36:00 pm »
Dear Professor Azarmi,

I attached the solution to the first homework to this message.

Yours sincerely,
Oliver Krebs

Offline AndiStaudacher

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Solutions Triangular Arbitrage
« Reply #37 on: April 29, 2009, 02:49:13 pm »
Please find my solution attached.

Best regards
Andrea Staudacher

Offline Carolynna

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Re: Solutions Triangular Arbitrage
« Reply #38 on: April 29, 2009, 05:51:21 pm »
See attached.

Best,
Carolynna

Offline Winge

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Re: Solutions Triangular Arbitrage
« Reply #39 on: April 29, 2009, 06:29:55 pm »
Solution for the class problem

1. Look up the exchange rates in London

1 USD = 0.7536 EUR
1 USD = 96.94 JPY

2. Calculate the implied exchange rate

0.7536 EUR = 96.94 JPY
1 EUR = (96.94/0.7536) JPY = 128.6359 JPY

3. Look up the exchange rate in Tokyo

1 EUR = 125.72 JPY

4. Compare exchange rates for EUR/JPY --> EUR is more expensive in London

Arbitrage strategy: Sell EUR in London and buy EUR in Tokyo

4.1 Exchange EUR in USD (London)
1 EUR = (1/0.7536) USD
1,000,000 EUR = 1,326,963.91 USD

4.2 Exchange USD in JPY (London)
1 USD = 96.94 JPY
1,326,963.91 USD = 128,635,881.1 JPY

4.3 Exchange JPY in EUR (Tokyo)
1 JPY = (1/125.72) EUR
128,635,881.1 JPY = 1,023,193.46 EUR

Result: Profit = 1,023,193.46 EUR - 1,000,000 EUR = 23,193.46 EUR

Best regards
Winfried G.







Offline shohendorff

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Re: Solutions Triangular Arbitrage
« Reply #40 on: April 29, 2009, 06:54:03 pm »
Triangular Arbitrabe Exercise

1) Implied Rate

$-based spot market quotes in London
               $1 = 105.91¥
               $1 = 0.86 €
 > Implied rate: 105.91¥=0,86€
                                  1€= 123.15¥

Tokyo Spot MArket
1€= 128.05¥

€ is more expensive in Tokyo.
Because, we pay 128.05 ¥ > 123.15 ¥
For a € in Tokyo (more than London).

2) Triangular Arbitrage

Sell 1.000.000 € in Tokyo at 128,05¥/€!
Now we have 128.050.000¥.

Convert 128.050.00¥ to $ in London!
 
 1$=105.91¥
 128.050.000/105.91=1,209,045.416$

Convert 1,209,045.416$ to € in London!

 1$=0,86€
 1,209,045.416*0,86= 1,039,779.058 €

So we have an arbitrage profit of 1,039,779.058-1.000.000= 39,779.06€.

Look up the exchange rates:
Exchange Rate in London: 1$=0.75030 € (04.29.09 17:35)
             1$=97.0000¥
Implied Rate = 97.0000/0.75030 =129.28
         1€=129.28¥

Tokyo: 1€=125.72¥

Best regards
Stephanie Hohendorff

Offline psodtke

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Re: Solutions Triangular Arbitrage
« Reply #41 on: April 29, 2009, 07:08:18 pm »
Homework attached.

Best regards,

Peggy Sodtke

Offline Alena Hörger

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Re: Solutions Triangular Arbitrage
« Reply #42 on: April 29, 2009, 08:33:00 pm »
Please find the solution attached.

Best regards,

Alena Hörger

Offline BeateBraun

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Re: Solutions Triangular Arbitrage
« Reply #43 on: April 29, 2009, 08:56:17 pm »
Please find my solutions attached.

Best regards,

Beate Braun

Offline TobiasF

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Re: Solutions Triangular Arbitrage
« Reply #44 on: April 29, 2009, 09:31:03 pm »
Please find my homework attached.

See you tomorrow,
Tobias
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