LESSON THREE:
INTERNATIONAL ARBITRAGE
By DR.STEPHEN ODHIAMBO
At the end of this topic the learner should be able to describe:
a) The concept of international Arbitrage
b) The various forms international arbitrage takes
-International arbitrage is the process of capitalizing on the discrepancy between
quoted prices in the international arena
-Discrepancy in quoted prices is more profound because of different parameters in
the economy.
-In the logarithm, arbitrage opportunities usually fade out due to information flow.
-In the international money market, arbitrage takes three forms namely:
Locational arbitrage
Triangular arbitrage
Covered Interest Arbitrage
1. LOCATIONAL ARBITRAGE
This type of arbitrage is based on the geographical location
Investors under this arbitrage form benefit from exchange rate disequilibrium
1
INTERNATIONAL ARBITRAGE
By DR.STEPHEN ODHIAMBO
At the end of this topic the learner should be able to describe:
a) The concept of international Arbitrage
b) The various forms international arbitrage takes
-International arbitrage is the process of capitalizing on the discrepancy between
quoted prices in the international arena
-Discrepancy in quoted prices is more profound because of different parameters in
the economy.
-In the logarithm, arbitrage opportunities usually fade out due to information flow.
-In the international money market, arbitrage takes three forms namely:
Locational arbitrage
Triangular arbitrage
Covered Interest Arbitrage
1. LOCATIONAL ARBITRAGE
This type of arbitrage is based on the geographical location
Investors under this arbitrage form benefit from exchange rate disequilibrium
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