VALUES ARE MEASURE PER UNIT LOCAL CURRENCIES
FIND
1POSSIBILITIES OF ARBITRAGE DURING ANY GIVEN MONTH
2DRAW GRAPHS TO SHOW VARIATION IN CROSS EXCHNAGE RATE OF ANY THREE COUNTRIES
3DRAW GRAPH TO SHOW ALL THESE CURRENCIES'EXCHANGE RATES AND MENTION IMPORTANT CHANGES AND HIGH / LOW VOLATILITY PATTERNS
4IN WHICH PAIRS OF COUNTRIES FUTURE/SWAB/OPTIONS ARE BETTER AS HEDGING STRETEGIES.
DRAW GRAPH TO SHOW ALL THESE CURRENCIES'EXCHANGE RATES AND MENTION IMPORTANT CHANGES AND HIGH / LOW VOLATILITY PATTERNS
1Possibilities For Arbitrage
Example
a. Sell USD to buy Japanese Currency 10,000,000.00$
USD/JPY Bid x 0.00799936
79,993.60JPY
b. Sell JPY to buy KUD 79,993.60JPY
0.002484JPY
JPY/KWD Bid x 0.002484
KWD 198.67
c. Sell KWD to buy USD KWD 198.67
KWD/USD Bid x 3.22
61.6812
12,254.18$
Arbitrage Profit 12,254.18$
- 10,000,000.00$
(9,987,745.82)$
In general, arbitrage involves simultaneously buying and selling equivalent financial instruments in different markets such that a profit is
assured. In triangular arbitrage, a base currency is exchanged for second currency, and then the second currency exchanged for a third
prior to converting back to the base currency.
In the given data I am using USD as a base currency.
Suppose I have the abiliity to make a leveraged trade with $10,000,000/-.
In the instant case, I am taking the example of three currencies, including USD, Japanese Yen (JPY) & KUWAITIAN DINAR (KWD) in
order to check the possibility of triangular arbitrage in the first month of 1993 as per given data. .
In the above example, it is evidant that there is a possibility of arbitrage in the above mentioned currencies in the first month of 1993.
In general, arbitrage involves simultaneously buying and selling equivalent financial instruments in different markets such that a profit is
assured. In triangular arbitrage, a base currency is exchanged for second currency, and then the second currency exchanged for a third
prior to converting back to the base currency.
In the given data I am using USD as a base currency.
Suppose I have the abiliity to make a leveraged trade with $10,000,000/-.
In the instant case, I am taking the example of three currencies, including USD, Japanese Yen (JPY) & KUWAITIAN DINAR (KWD) in
order to check the possibility of triangular arbitrage in the first month of 1993 as per given data. .
In the above example, it is evidant that there is a possibility of arbitrage in the above mentioned currencies in the first month of 1993.
In the above mentioned data as well as graphical repsentation of the given pair of
countires, it is evidant that KUWAIT/BHUTAN and KENYA/AUSTRALIAN are the pair of
countries wherein futures/SWAP/options are better as hedging strategy. However
JAPAN/KHWAIT show some abnormal trend , but it will also beneficial for Swap option.
0
100
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600
1993M01 1994M08 1996M03 1997M10 1999M05 2000M12 2002M07 2004M02 2005M09 2007M04 2008M11 2010M06 2012M01 2013M08 2015M03 2016M10 2018M05 2019M12
Period
Best pair of countries as better Hedging Staretgy
KENYA/AUSTRALIAN