The document discusses the concept of arbitrage in financial markets. It defines arbitrage as buying currency in one market at a lower price and selling it in another market at a higher price to earn risk-free profits. It provides examples of geographical arbitrage, where the same currency trades at different prices in different locations, and triangular arbitrage, where currencies are traded across three markets to exploit small temporary price differences. The document also lists the conditions required for arbitrage opportunities to exist and includes some examples calculations to illustrate arbitrage scenarios.
The document discusses the concept of arbitrage in financial markets. It defines arbitrage as buying currency in one market at a lower price and selling it in another market at a higher price to earn risk-free profits. It provides examples of geographical arbitrage, where the same currency trades at different prices in different locations, and triangular arbitrage, where currencies are traded across three markets to exploit small temporary price differences. The document also lists the conditions required for arbitrage opportunities to exist and includes some examples calculations to illustrate arbitrage scenarios.
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This document gives information about Arbitrage in the International Finance
The document discusses the concept of arbitrage in financial markets. It defines arbitrage as buying currency in one market at a lower price and selling it in another market at a higher price to earn risk-free profits. It provides examples of geographical arbitrage, where the same currency trades at different prices in different locations, and triangular arbitrage, where currencies are traded across three markets to exploit small temporary price differences. The document also lists the conditions required for arbitrage opportunities to exist and includes some examples calculations to illustrate arbitrage scenarios.
The document discusses the concept of arbitrage in financial markets. It defines arbitrage as buying currency in one market at a lower price and selling it in another market at a higher price to earn risk-free profits. It provides examples of geographical arbitrage, where the same currency trades at different prices in different locations, and triangular arbitrage, where currencies are traded across three markets to exploit small temporary price differences. The document also lists the conditions required for arbitrage opportunities to exist and includes some examples calculations to illustrate arbitrage scenarios.
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AMITY GLOBAL
BUSINESS SCHOOL Noida
MBA Arbitrage Mr. Sachin Rohatgi
1 AMITY GLOBAL BUSINESS SCHOOL Noida
The Spot Market
Arbitrage The act of buying currency in one market at lower prices and selling it in another at higher price. It helps the arbitrageurs in the market to earn profit without risk It is a balancing operations that do not allow the same currency to have varying rates in different forex markets. People who engage in arbitrage are called arbitrageurs, such as a bank or brokerage firm. AMITY GLOBAL BUSINESS SCHOOL Noida
Conditions of Arbitrage
Arbitrage is possible when one of three conditions is
met: The same asset does not trade at the same price on all markets ("the law of one price"). Two assets with identical cash flows do not trade at the same price. An asset with a known price in the future does not today trade at its future price discounted at the risk- free interest rate AMITY GLOBAL BUSINESS SCHOOL Noida
Types of arbitrage Geographical Triangular arbitrage AMITY GLOBAL BUSINESS SCHOOL Noida
The Spot Market
Geographical Arbitrage
Different prices quoted in two geographical markets for the
same currency AMITY GLOBAL BUSINESS SCHOOL Noida Exercise 1 Tokyo and London Observe the following: USD/INR London 62.5730--62.61 Tokyo 62.6750 -- 62.6675 Can make money out of it if you have Rs.100 million with you ? AMITY GLOBAL BUSINESS SCHOOL Noida Triangular Arbitrage
The process of converting one currency to another,
converting it again to a third currency and, finally, converting it back to the original currency within a short time span. This opportunity for riskless profit arises when the currency's exchange rates do not exactly match up. Triangular arbitrage opportunities do not happen very often and when they do, they only last for a matter of seconds. AMITY GLOBAL BUSINESS SCHOOL Noida Exercise-2
The following are three quotes in three forex markets
1$=Rs.60.54 in Mumbai 1pound=Rs.100.42 in London 1Pound=$1.66 in Newyork Are there any arbitrage gains possible? Assume there are no transaction costs and the arbitrageur has $1,000,000. AMITY GLOBAL BUSINESS SCHOOL Exercise 3 Noida
A New York bank is currently offering these spot rates:
USD/JPY: 110.25/111.10 USD/AUD : 1.6520/1.6530
At the same time a bank in Sydney is quoting:
AUD/JPY: 68.30/69.00
Is there an arbitrage opportunity?
AMITY GLOBAL BUSINESS SCHOOL Noida Arbitrage Condition
