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Travelex Australia provides the following three exchange rates
Travelex Australia provides the following three exchange rates. You assume that there is a triangular arbitrage profit opportunity exists based on the following three quotations. Calculate the arbitrage profit if you have A$1.47 million or MYR2.30 million or CNY3.22 million. (enter the whole number without sing or symbol).
|
Exchange rates |
bid price |
ask price |
|
Value of a Chinese yuan (CNY) in Australian dollars (A$) |
A$0.2061 |
A$0.2273 |
|
Value of a Malaysian ringgit (MYR) in Australian dollars (A$) |
A$0.3067 |
A$0.3256 |
|
Value of a Malaysian ringgit (MYR) in Chinese yuan (CNY) |
CNY1.7094 |
CNY1.9794 |
Expert Solution
To determine arbitrage opportunity we need cross currency rate
A$ / CNY = A/$ /MYR * MYR/CNY
Bid = 0.3067 *1/1.9794 = 0.1549
Ask = 0.3256 * 1/1.7094 =0.1905
since Bid ask rate is not in the range of given quoted currency rate of A$/CNY therefore arbitrage opportunity exist.
Arbitrage process
Let we have CNY 3220000
1. Sale CNY at given rate of A$ 0.2061 - 0.2273
= 3220000 * 0.2061 = A$ 663642
2. Sale A$ at given rate of MYR = 0.3067 - 0.3256
= 663642 / 0.3256 = 2038212.53
3. Sale MYR at given rate to realise back CNY @ 1.7094 - 1.9794
2038202.53 * 1.7094 = 3484120.5
net gain = Realised CNY - orignal CNY = 3484120.5 - 3220000 = CNY264120.5
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