Triangular arbitrage in the spot and forward foreign exchange markets

Imad Moosa shows that the effect of triangular arbitrage in the forward market is similar to the combined effect of triangular arbitrage in the spot market and covered interest arbitrage. He also shows that when the forward rates are inconsistent then this implies inconsistency of the spot rates and/or the violation of covered interest parity. When the bid-offer spreads are allowed for, the equilibrium conditions hold only approximately.