Bank A quotes a bid rate of £0.125 and an ask rate of £0.155 for the Malaysian ringgit (MYR). Bank B quotes a bid rate of £0.162 and an ask rate of £0.171 for the ringgit. What will be the profit for an investor who has £500,000 available to conduct locational arbitrage?

Question

Quizplus · Accepted Answer

The investor can buy MYR from Bank A at £0.155 and sell it to Bank B at £0.162. The profit is calculated as follows: Buy MYR with £500,000 at £0.155 = 3,225,806.45 MYR. Sell 3,225,806.45 MYR at £0.162 = £522,581. Profit = £522,581 - £500,000 = £22,581.

Bank a Quotes a Bid Rate of £0