two-point arbitrage

Two-point arbitrage is a financial operation where an individual simultaneously buys and sells foreign exchanges in two different markets to profit from price differences. This strategy aims to exploit temporary discrepancies in exchange rates. For instance, if Country A's currency is worth two to the dollar in New York, and Country B's franc is valued at five to the dollar, a theoretical rate of two sovereigns to five francs should exist. If banks in Country B offer four francs for two sovereigns, an operator could buy francs, exchange them for sovereigns at the favorable rate, and then sell those sovereigns in New York for a profit. This process continues until the price differences are eliminated.12