Question

The following spot rates are quoted:

USD/ GBP 1.3024 - 89

TTD/GBP 8.2965 - 5745

(a) Using a cross rate, calculate the bid-ask spread for the TTD/USD exchange rate.

(b) If TTD/USD was actually quoted at 6.6514-7836, calculate how much arbitrage profit (in TTD) could be earned from TTD1,000.

Answer 1

TTD/ USD = [ TTD/ GBP] * [ GBP / USD ]

Bid rate = 8.2965 * ( 1 / 1.3089 )

= 8.2965 / 1.3089

= 6.3385

Ask rate = 8.5745 * ( 1 / 1.3024 )

= 8.5745 / 1.3024

= 6.5836

TTD/ USD = 6.3385 - 6.5836

Arbitrage Gain:

Convert TTD into GBP

= 1000 / 8.5745

= 116.62

Convert GBP into USD

= 116.62 * 1.3024

= 151.89

Convert USD into TTD

= 151.89 * 6.6514

= 1010.30

Arbitrage Gain = 1010.30 - 1000

= 10.30

Pls do rate, if the answer is correct and comment, if any further assistance is required.