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Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
A series of three currency trades in which the exchange rates do not exactly match up. In triangular arbitrage, an arbitrageur may profit from the inefficiency in pricing of the exchange rates. The process of triangular arbitrage involves converting one currency to another, then to a third, then back to the first. Opportunities for this are rare because the currency markets are so liquid as to provide almost perfect efficiency. It ordinarily requires advanced computer software to accomplish it successfully.
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