Economics · Foreign Exchange Market
Which of the following statements regarding Triangular Arbitrage in the foreign exchange market is INCORRECT?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1In modern highly liquid foreign exchange markets, such opportunities are typically eliminated almost instantaneously by algorithmic trading.
- 2In its pure form, this mechanism requires a significant initial capital outlay and entails substantial market risk for the trader.✓
- 3It functions as a market equilibrating mechanism where the act of exploiting price differences eventually causes prices to converge.
- 4It is a mechanism used to exploit and eliminate exchange rate inconsistencies specifically across three different currency pairs.
Correct answer
In its pure form, this mechanism requires a significant initial capital outlay and entails substantial market risk for the trader.
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