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Q15. The Malaysian Ringgit is quoted by Hani Bank in Kuala Lumpur at $0.3510 Bid and...

Q15. The Malaysian Ringgit is quoted by Hani Bank in Kuala Lumpur at $0.3510 Bid and $0.3150 Ask. At the same time, Ori Bank in Singapore is quoting $0.3170/$.3180. Under this scenario:

Describe the arbitrage opportunity available to investors?                   

What would be the profit if an investor had $1 Million to invest, ignoring trading costs?

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Answer #1

You have $1,000,0000 then first you should convert Dollar into Malaysian Ringgit In Hani Bank in Kuala Lumpur.

So, total Ringgit You receive = $1,000,000 / $0.3150

= 3,174,603.17 Ringit.

Now Convert Malaysian Ringgit in to dollar in Ori Bank in Singapore at $0.3170.

Total Dollar you will receive = 3,174,603.17 Ringit × $0.3170.

= $1,006,349.21.

Total Dollar you will receive is $1,006,349.21.

Total Arbitrage Profit = $1,006,349,21 - $1,000,000

= $6,349.21.

Total Arbitrage profit is $6,349.21.

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