Question

Great Pyramids. Inspired by his recent trip to the Great Pyramids, Citibank trader Ruminder Dhillon wonders if he can make an intermarket arbitrage profit using Libyan dinars (LYD) and Saudi riyals (SAR). He has USD1,000,000 to work with so he gathers the following quotes. Is there an opportunity for an arbitrage profit? Citibank quotes U.S. dollar per Libyan dinar National Bank of Kuwait quotes Saudi riyal per Libyan dinar Barclay quotes U.S. dollar per Saudi riyal $1.9324 LYD1.00 SAR 1.9405 $0.2667 SAR1.00 LYDI .00 Calculate the profit (loss) from the intermarket arbitrage profit through path #1 below: (Round to the nearest cent) Path #1: US$ to riyals to dinars to US$ Starting amount Convert to riyals at Barclay quote 1,000,000.00 SAR

Answer 1

Path 1 :

He is starting with $1,000,000.00

upon conversion to SAR, we get, as he will sell dollars to buy SAR,

we get,

$0.2667/ SAR OR,

3.7495 SAR/ $

upon conversion, SAR 3749531.309,

sell SAR to buy LYD

Now, convert this into LYD using the quote,

LYD 0.5153/ SAR

WE get LYD 1932250.095

Now, finally we convert this currency into dollars we get,

$1.9324/LYD,

Sell LYD to buy dollars.

we get, $3733880.083

so, the arbitrage profit is ( $3733880.083 - $1,000,000) = $2,73,3880.083 = $2,73,880 (rounded off to nearest cents)