Question

•Consider the following three banks each providing a $:¥ quote :

Bank A Bank B Bank C

122.25-35 122.40-45 122.25-45. Does an arbitrage opportunity exist?

Answer 1

Bank rate (¥/$)	Bid	Ask
A	122.25	122.35
B	122.40	122.45
C	122.25	122.45

Yes arbitrage opportunity exists because bank A has lower ask than bank B bid rate mean (bank A selling $ cheaper than bank B purchasing $)

Let's suppose suppose I have 100000 $ go to bank b to sell $ bid rate their 122.40

So I get ¥ 12240000 now I goes to bank A I have yen I want to sell yen and purchase $ so ask rate will apply I would get (12240000/122.35)=$100040.86

I start with $100000 and end with $100040.86

With arbitrage profit of $ 40.86