Question

# The Malaysian Ringgit is quoted by Hani Bank in Kuala Lumpur at \$0.3510 Bid and \$0.3150...

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: A. Describe the arbitrage opportunity available to investors?

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

Hani bank rate = \$0.3510-\$3150
Bid rate for \$ = 1/Ask rate = 1/0.3150 = 3.1746
Ask rate for \$ = 1/Bid rate = 1/0.3510 = 2.849
Hani bank rate for \$ = 3.1746-2.8490
Ori Bank rate = \$0.3170-\$0.3180
Bid rate for \$ = 1/Ask rate = 1/0.3180 = 3.1447
Ask rate for \$ = 1/Bid rate = 1/0.3170 = 3.1546
Ori bank rate for \$ = 3.1447-3.1546
If we have \$1000000, we can convert into Malaysian ringets from
Hani bank = \$1000000*3.1746 = 3174600 Malaysian ringets.
Sell these ringets and convert to \$ from Hani bank i.e 3174600*0.3510 = \$1114284.6
Net profit = \$1114284.6-\$1000000 = \$114284.6

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