Bank A quotes a bid rate of $0.300 and an ask rate of $0.305 for the Malaysian ringgit (MYR). Bank B quotes a bid rate of $0.306 and an ask rate of $0.310 for the ringgit. What will be the profit for an investor that has $500,000 available to conduct locational arbitrage?
A) $2,041,667
B) $9,804
C) $500
D) $1,639

Question

Quizplus · Accepted Answer

The investor can buy MYR from Bank A at $0.305 and sell it to Bank B at $0.306. The profit per MYR is $0.001. With $500,000, the investor can buy $500,000 / $0.305 = 1,639,344.26 MYR. Selling this at $0.306 gives $501,639.34, resulting in a profit of $501,639.34 - $500,000 = $1,639.34, approximately $1,639.

Bank a Quotes a Bid Rate of $0