Going by the above information in the question, Locational Arbitrage is POSSIBLE
Locational Arbitrage is a strategy in which a trader/individual seeks riskless profit from differences in the exchange rate for the same currency offered by different banks. Usually, this type of difference is rare and short-lived because the algos detect it very quickly and trade in a matter of seconds by exploiting the arbitrage opportunity, which is not possible for humans to act on it swiftly.
There are simple steps involved in this type of arbitrage, that are buying currency from one bank on BID price and selling it to another bank on its ASK price. This step will be repeated by trader for both the banks.
CALCULATION:
BANK X
Bid price of US dollars = GH¢5.40
Ask price of US dollars = GH¢5.39
Bank Y
Bid price of US dollars = GH¢5.45
Ask price of US dollars = GH¢5.44
1. Trader will buy GH¢ from Bank X at 5.40 and sell it to Bank Y at 5.44
Minimum profit = 5.44 - 5.40 = 0.04
Total Profit for GH¢1,000,000 will be = 0.04 x 1,000,000 = GH¢ 40,000
2. Trader will buy GH¢ from Bank Y at 5.45 and sell it to Bank X at 5.39
Minimum profit = 5.45 - 5.39 = 0.06
Total Profit for GH¢1,000,000 will be = 0.06 x 1,000,000 = GH¢ 60,000
OVERALL PROFIT = GH¢ 40,000 + GH¢ 60,000 = GH¢ 100,000
Bid Ask Spread is the difference between the Bid and Ask Price of the same bank.
Bid-Ask Spread for Bank X = 5.40 - 5.39 = 0.01
Bid-Ask Spread for Bank Y = 5.45 - 5.44 = 0.01
Two factors influencing Bid Ask spread are Liquidity in the market and the difference in demand and supply of the currency and also during the time of uncertainties which generally increases the spread.
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