Triangular Arbitrage Strategy: A. Is the foreign exchange market inefficient? Discuss. B. Problem:
The following Quotations are available to you. (You may either buy or sell at the stated rates)
Singapore Bank: Singapore dollar quote for Korean Won Hong Kong Bank: HK$ quote for Singapore dollars Korean Bank: Korean won quote for Hong Kong dollars
Won 714.00/S$ HK$ 4.70/S$ Won 150.00/HK$
Assume you have an initial HK$1,000,000. Is triangular Arbitrage possible? If so, explain the Steps, and compute your profit? What are the implications of trading spreads and commission costs for this profit? Is commission costs are $3,000 per transactions, is artbitrage still possible and profitable?