Question

Dealer A offers the following exchange rates:

1 USD = 1.12 CAD
1 USD = 0.849 GBP

Dealer B offers the following exchange rates:
1 CAD = 0.836 GBP

What is the arbitrage profit on $39,752?

Enter your answer round off two two decimal points.

Answer 1

Solution:

As per the information given in the question we have:

Availability of $ 39,752

Exchange rates

Dealer A :

1. USD to CAD

CAD / USD = 1.12 CAD

2. USD to GBP

GBP / USD = 0.849 GBP

Dealer B

3. CAD to GBP

GBP / CAD = 0.836 GBP

Step 1: Sell USD to buy CAD

We have $ 39,752 to look for an arbitrage opportunity                       

We know that 1 USD =   CAD 1.12     ( Dealer A )

Thus on sale /exchange of USD for CAD we will have

= USD 39,752 * CAD 1.12

= CAD 44,522.240000

Step 2: Sell CAD to buy GBP

We now have CAD 44,522.240000

We know that 1 CAD = 0.836 GBP    ( Dealer B )

Thus on sale or exchange of CAD for GBP we will have

= CAD 44,522.240000 * 0.836 GBP

= 37,220.592640 GBP

Step 3 : Sell GBP to buy USD

We now have 37,220.592640 GBP

We know that 1 USD = 0.849 GBP   ( Dealer A )

Thus on sale or exchange of GBP for USD we will have

= 37,220.592640 GBP / 0.849 GBP

= 43,840.509588 USD

Thus the profit on the arbitrage opportunity = USD 43,840.509588 – USD 39,752

= USD 4,088.509588

= USD 4,088.51 ( when rounded off to two decimal places )

The profit on arbitrage opportunity = USD 4,088.51