Question

Suppose you receive the following quotes from a dealer. The bid and ask prices for USD are MYR4.15 and MYR4.18, respectively. The same dealer also quotes the bid and ask prices for GBP to be at MYR5.10 and MYR5.15. Given the following quotes, calculate the USD cost of obtaining GBP10,000.

A. $8,058

B. $8,196

C. $12,200

D. $12,410

Suppose you get the following exchange rate quotes: MYR4.4365/USD, MYR3.34/AUD, and USD0.74/AUD. Determine the triangular arbitrage profit that is possible if you have MYR1,000,000 to perform arbitrage.

A. MYR17,063

B. MYR17,210

C. MYR17,359

D. MYR17,590

Answer 1

To calculate cross currency calculation we first understand what data we have

We have

USDMYR=4.15/4.18

bid=4.15 and ask =4.18

and

GBPMYR=5.10/5.15

bid=5.10 and ask=5.15

Now we have to find GBPUSD

GBPUSD = (GBPMYR)_bid * (MYRUSD)_bid

now we don't have (MYRUSD)_bid

SO we can find it using the following (MYRUSD)_bid = 1/(USDMYR)_ask

so using above eqn we can find GBPUSD

(GBPUSD )_bid = (GBPMYR)bid * 1/(USDMYR)_ASK

(GBPUSD)_bid = 5.10 * 1 / 4.18 =1.2200

SImilarly

(GBPUSD)_ask = (GBPMYR)_{ask *} 1/ (USDMYR)_bid

(GBPUSD)_{ask = 5.15 *1/4.15 =1.2401}

_{SO GBPUSD= 1.2200/1.2401}

Now we have to obtain 10000 gbp , so ask price will be used ,

10000*1.2401 = $12410

So option D is the right answer

Answer 2

So we have

USDMYR = 4.4365 -------1

AUDMYR = 3.34----------2

and AUDUSD= 0.74----------3

Arbitrage opportunity is the following

Convert 1 million myr into USD using (1) (means sell myr to buy usd)

1,000,000* 1/4.4365 = $225,402.9076

Convert $225,402.9076 into AUD using (3) (mean sell usd to buy aud)

$225,402.9076 * 1/0.74 =304,598,524 AUD

Convert 304,598,524 AUD into MYR again using (2) (mean sell aud again to buy myr)

304,598,524 AUD * 3.34 = 1,017,359.06

So arbitrage profit= 1017359-1000000 = 17,359MYR
C is the correct option