Question

Given the following exchange rate in Kuala Lumpur and Canberra:

USD/MYR = 4.2100 (Kuala Lumpur)

AUD/MYR = 2.8500 (Kuala Lumpur)

USD/AUD = 1.3529 (Canberra)

(a) Determine if there is any arbitrage opportunities.

(b) Calculate the profit/ (loss) from the above triangular arbitrage assuming your investment start with MYR 3,000,000.00.

(c) Based from your answer in (b) above, which flow would you convert your investment?

Answer #1

(a)4.2100 MYR=1USD

2.8500MYR=1AUD

if there is NO arbitrage opportunities;

(1/4.2100)USD=(1/2.8500)AUD

1USD=(4.2100/2.8500)AUD=1.4772AUD

Actual USD/AUD=1.3529

Hence , there is arbitrage opportunity

(b)Calculation of Profit/(Loss) from Arbitrage:

FLOW 1

Convert 3 million MYR into USD

Amount of USD received=3million/4.2100=712,589 USD

Convert 712,589 USD to AUD

Amount of AUD received=712,589*1.3529=964,062 AUD

Convert 964062 AUD to MYR

Amount of MYR to be received=964062*2.8500=2,747,576

LOSS=3000000-2747576=252424 MYR

FLOW 2

Convert 3 million MYR into AUD

Amount of AUD received=3million/2.8500=1052632 AUD

Convert 1052632 AUD to USD

Amount of USD received=1052632/1.3529=778056 USD

Convert 778056 USD to MYR

Amount of MYR to be received=778056*4.2100=3,275,615

PROFIT =3275615-3000000=275,615 MYR

(c) FLOW2 should be followed to get arbitrage profit

An emergency can anyone assist me to solve this :
Donny is an exchange rate trader based in Kuala Lumpur. He has
received this
information on the exchange rates quoted by 3 different banks as
follows:
Bid
Bank A (MYR/SGD)
3.0680
3.0701
Bank B (USD/SGD)
0.7220
0.7451
Bank C (MYR/USD)
4.2754
4.3456
Assume that he has MYR200,000 to be used as a starting amount to
benefit from this
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0.9313 – 0.9321
Three-month forward rate (AUD/USD)
0.9412 – 0.9420
Australian three-month interest rate
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U.S. three-month interest rate
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