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?
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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