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    Foreign exchange market

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    Suppose that the Euro is selling for US$1.10 per 1 Euro or "120 Yen per Euro", and the yen is 100 Yen per $US1. Demonstrate the specific trades that you would use to make money, and calculate how much money you would make.

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    Solution Preview

    This is a problem of triangular arbitrage. Triangular arbitrage is the process of trading out of the U.S. dollar into a second currency, then trading it for a third currency, which is in turn traded for U.S. dollars. The purpose is to earn an arbitrage profit via trading from the second to the third currency when the direct exchange between the two is not in alignment with the cross ...

    Solution Summary

    The solution explains how to solve a triangular arbitrage problem