Adam, Arnold, and Peter are waiting in line and arranged themselves alphabetically, one in front of the other, with Adam being first. A vendor approaches to advertise them watches. The watches come in two different colors blue and yellow. As he is walking towards the trio, they can see that he has three blue watches and two yellow watches.

The vendor decides to play a game. He tells the trio to close their eyes as he places a watch on each of their wrists. He then says these three are standing in a line in such a way that each one can see the color of the watch of any and all of them who are ahead of him in line and cannot see the watch of the person that is standing behind him in line. I propose this challenge. If any of you can correctly tell me what watch I have placed on your wrist, you may have it free of charge. However, if you are wrong, you must buy the watch from me. So do any of the three think they know the answer?

Not wanting to guess unless they are 100% sure they are correct, the trio think carefully. Suddenly one of the three confidently raises his hand and correctly announces the color of the watch. Which of the three spoke, and what color watch were they wearing? Explain your reasoning.