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Triangular arbitrage in the spot and forward foreign exchange markets 

Author: I. Moosa
DOI: 10.1080/713665833
Publication Frequency: 8 issues per year
Published in: journal Quantitative Finance, Volume 1, Issue 4 April 2001 , pages 387 - 390
Formats available: PDF (English)
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Abstract

Imad Moosa shows that the effect of triangular arbitrage in the forward market is similar to the combined effect of triangular arbitrage in the spot market and covered interest arbitrage. He also shows that when the forward rates are inconsistent then this implies inconsistency of the spot rates and/or the violation of covered interest parity. When the bid-offer spreads are allowed for, the equilibrium conditions hold only approximately.
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