1. TFM FINAL PROJECT
Topics:
• How can you make arbitrage profits in Pakistan
FX market, discuss various forms of arbitrage in
Pakistan with examples.
• Role of IT in FX market
• Interview an FX broker
Presented by: Asmat Ahmed
(1225108)
Shaista Bano
(1225129)

2. Arbitrage
 The simultaneous purchase and sale of an
asset in order to profit from a difference in the
price.
 It is a trade that profits by exploiting price
differences of identical or similar financial
instruments, on different markets or in different
forms
 Arbitrage exists as a result of market
inefficiencies

3. Currency Arbitrage
 Currency arbitrage involves the exploitation of
the differences in quotes.
 Given the advancement in technology it has
become extremely difficult to profit from
mispricing in the FX market.
 Any inefficient pricing setups are usually acted
upon quickly and the opportunity is often
eliminated in a matter of seconds.

4.  There are two types of arbitrage of relevance
to forex markets:
1. exchange rate arbitrage
two-point
three-point arbitrage.
2. interest rate arbitrage

5. Two-point arbitrage:
 Two-point arbitrage concerns two currencies in
two geographically separated markets. For
Example let the spot exchange rate be

6. Three-point (triangular) or cross
rate arbitrage:
 As different forex dealers quote different rates
for a given currency pair at a given point of
time, it provides forex traders with arbitrage
opportunity. Hence this is known as “inter
market arbitrage”.

7.  Cross rate calculations helps in identifying the
inter market arbitrage opportunity.From these
pairs, cross rates can be calculated.
We have rates of:
Bank A
 USD/1CAN $ = 0.8592 US $.
BANK B
 USD/1EURO = 1.3958 US $
BANK C
The actual Euro/Can$ = Can$1.6244

8.  FORMULA FOR CALCULATING IMPLIED
CROSS RATE IS :
 CAN $/EURO = (CAN $/USD) * (USD /EURO)
 = 1.16387 * 1.3958
 = 1.6245 (implied cross rate)

9. Interest rate arbitrage
Forex traders regular make arbitrage profit
through interest rate differential in two
countries. This is known as “interest rate
arbitrage”.

10. CURRENT SITUATION:
 Spot rate £1 = €1.6140
 Interest rate for coming 12 months is 5.5% for
Pound
 3.75% for Euro
 Suppose a bank quotes a 3 month forward
rate as £1 = €1.5970

11. STRATEGY
 a trader borrows £100,000 for 3 months
 He has to pay £101,375 after 3- months.
 He converts £100,000 to € at the spot rate.
 He receives €161400 and lent it @at 3.75%
interest rate for 3 months

12. OUTCOME
 He earns € 162913.
 He converts euro proceeding to Pound
sterling at the 3 month forward rate of £1 =
€1.5970.
 He earns £102,012.
 He returns £101,375
 makes an arbitrage profit of £636.

13. Role of “IT” in FX Market
Nowadays IT plays a vital role in terms of
making things more easy, quick and accurate,
as some time before in FX Market the
operations were done manually which were
time taking and less chances of accuracy as
well.

14. BENEFITS
And now through different software and online trading centers
like MT4, AVA FX, FXCM and Wall Soft; brokers are enjoying
following advantages:
 User Experience
 Language
 Charts
 Expert Advisors
 Communication
 Low Resources
 Profiles
 Security
 Flexibility
 Customization

15. Conclusion
In conclusion, like we said, this platform has
become a market standard and there is a good
reason for that. It is the most advanced and
trustworthy platform available on the market,
and even with its complex and advanced
features, the user interface is friendly and
intuitive making it an attractive option for new
and experienced Forex traders alike.