University:
Triangular Arbitrage Strategy in the
Foreign Exchange Market
Student:
Professor:
Date:
, 1 Introduction
Triangular arbitrage is a financial strategy that seeks to exploit inefficiencies in the relative
prices of three currencies in the foreign exchange market. The logic consists of carrying out
a sequence of transactions that starts and ends in the same currency, with the objective of
generating a risk-free profit. However, in practice, the existence of spreads, commissions,
and latency limits the effectiveness of these opportunities (Binance, 2021; UMNG, 2020).
2 Macroeconomic Context
For this exercise, the selected currencies are USD (U.S. dollar), EUR (euro), and COP
(Colombian peso).
The U.S. dollar remains strong in 2025 due to the monetary policy of the Federal Reserve
and its role as the global reserve currency. The euro, on the other hand, faces pressures
derived from the slowdown in Germany and Italy, although the European Central Bank
maintains restrictive policies to control inflation. Finally, the Colombian peso has shown a
volatile trend, with appreciations linked to rising international oil prices, but also pressured
by the fiscal deficit and political uncertainty in the country (Investing, 2025; ForexFactory,
2025).
3 Base Scenario: Mid Prices
Based on quotations observed on platforms such as Grupo Aval and Investing.com, the
following mid values are considered:
EU R/U SD = 1.0850, U SD/COP = 4,119.22, EU R/COP = 4,470.00
1
Triangular Arbitrage Strategy in the
Foreign Exchange Market
Student:
Professor:
Date:
, 1 Introduction
Triangular arbitrage is a financial strategy that seeks to exploit inefficiencies in the relative
prices of three currencies in the foreign exchange market. The logic consists of carrying out
a sequence of transactions that starts and ends in the same currency, with the objective of
generating a risk-free profit. However, in practice, the existence of spreads, commissions,
and latency limits the effectiveness of these opportunities (Binance, 2021; UMNG, 2020).
2 Macroeconomic Context
For this exercise, the selected currencies are USD (U.S. dollar), EUR (euro), and COP
(Colombian peso).
The U.S. dollar remains strong in 2025 due to the monetary policy of the Federal Reserve
and its role as the global reserve currency. The euro, on the other hand, faces pressures
derived from the slowdown in Germany and Italy, although the European Central Bank
maintains restrictive policies to control inflation. Finally, the Colombian peso has shown a
volatile trend, with appreciations linked to rising international oil prices, but also pressured
by the fiscal deficit and political uncertainty in the country (Investing, 2025; ForexFactory,
2025).
3 Base Scenario: Mid Prices
Based on quotations observed on platforms such as Grupo Aval and Investing.com, the
following mid values are considered:
EU R/U SD = 1.0850, U SD/COP = 4,119.22, EU R/COP = 4,470.00
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