When Triangular Arbitrage Opportunity occurs?
The triangular arbitrage opportunity will occur when exchange rates between three currencies are not in alignment. The triangular opportunity exists for very short span of time and are very rare so the arbitrageur need to be extremely proficient in software programming to finish the transactions quickly.
To check the Triangular Arbitrage Opportunity, you are provided with the following exchange rates:
1.EUR/USD = 1.3765
2. EUR/GBP = .8254
3. USD/GBP = .6011
Calculating: EUR/GBP= EUR/USD * USD/GBP= .8274, while the actual rate of EUR/GBP= .8254. We can see the exchange rate mismatch and an opportunity for a triangular arbitrage. We need to capitalize the opportunity asap before the discrepancy is corrected.