Bank A quotes a bid rate of $.300 and an ask rate of $.305 for the Malaysian ringgit (MYR). Bank B quotes a bid rate of $.306 and an ask rate of $.310 for the ringgit. What will be the profit for an investor who has $500,000 available to conduct locational arbitrage?

Question

Jimena Mckenzie

Business

9 August, 13:40

Bank A quotes a bid rate of $.300 and an ask rate of $.305 for the Malaysian ringgit (MYR). Bank B quotes a bid rate of $.306 and an ask rate of $.310 for the ringgit. What will be the profit for an investor who has $500,000 available to conduct locational arbitrage?

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Answers (1)

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Johnathon Miles · Answer 1

The profit for an investor who has $500,000 available to conduct locational arbitrage is $1,639.

Explanation:

Bank A has a ask rate of $0.305, so the investor can exchange his $500,000 at Bank A and get = $500,000/$.305 = MYR = 1,639,344

Bank B has a bid rate of $0.306, he can invest 1,639,344 = 1,639,344 * $.306 = $501,639.

501,639 - $500,000 = $1,639.

Thus, the profit is $1,639.