Triangle Arbitrage

question 63

Multiple Choice

Triangle arbitrage:

• A)no longer exists as all currencies have obtained equilibrium on an ongoing basis.
• B)prevents exchange markets from obtaining equilibrium.
• C)opportunities can exist in either the spot or the forward market.
• D)requires three currencies that are correctly priced plus one incorrectly priced currency.
• E)is rarely profitable.

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Definitions:

Futures Contracts

Standardized legal agreements to buy or sell something at a predetermined price at a specified time in the future.

Organized Exchange

A regulated market where securities, commodities, derivatives, and other financial instruments are traded.

Forward Contracts

A financial contract between two parties to buy or sell an asset at a predetermined future date for a price agreed upon today.

Gold Futures

Standardized contracts to buy or sell gold at a specified future date and price, used by investors for hedging and speculative purposes.