Question

1. 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 USD 1,000,000 to work with so he gathers the following quotes: Citibank quotes U.S. dollar per Libyan dinar $1.9619 = LYD 1.00 National Bank of Kuwait quotes Saudi riyal per Libyan dinar SAR 1.9107 = LYD 1.00 Barclays quotes U.S. dollar per Saudi riyal $0.2751 = SAR 1.00 Is there an opportunity for an arbitrage profit? If yes, calculate the arbitrage profit.

Answer 1

first we have to understand the concept of Geographical arbitsage. This arbitrage is done in the spot market by buying & selling currencies at various markets. + this corbitrage is possible due to mis match in spot rates in different markets. criven, - spot rates are, ILYD = $ 1.9619 ilyo = SAR 1.9107 ISAR = $02751 $ 10,00,000, so that $ as starting He has point. There are a soutes possible relating talt Route Convent into tyD. Usva spol satı >Lyd convert Inho SAR using Spot rate SARI convent into & Using spot rate ? Route un convent into & 11 I convent into SAR using spot rate SAR convent into LYD using spot rate ng Spot rate 10

Testing of route 10 He__has # 1,09000 converted into_LYD. -) Spot rate LYD = $ 1.9619 ? <$10,00000 10,00,000 1.9619 -) 5,09,709.975024 Lyn. convert lyo 5,09,709.975024 into SAR → spot rate ILYD = SAR 1.9107 LYD 5,09,709.975024 → ? - 5,09,709.975024 x 1.9107 =) SAR 9,73,902.849278. convert SAR 9,73,902. 849278 into $ → Spot Sate SAR - $ 0.2751 BAR 973,902-849278 → ? 9,73,902.849278 X0-275) $ 2,67,920.673836

summary route o $10,00,000 → LYD 15,09,709.9750247 SAR 9,73,902.849278 $ 2,67,920.67386. In this route there is arbitrage loss. Honnol 1L Str2,67,920.673836 - 10,00,000 - -7,32,079. 326178 Therefore arbitrage gain is not possible in route .

Testing of route • He has $ 10,0,000 converted into sal → spot gate 1SAR = $0.2751 įr $10,00,000 10,00,000 0.2751 -) SAR 36,35,041.80298, convert SAR 36,35,041.80298 into Lyo → spot rate I LYD = SAR 1.9107 ? + SAR 36,35,041.80298 36, 35,041: 80298 1.9107 -) LYO 19,02,466.00878 convert LYD 19,02,466.00878 into & spot rate ILYD = $ 1.9619 LYD 19,02,466.00 878 78 =) 19,02,466.00878 x 1.9619 - $ 37,32,448.06262,

-summary of route © $10,00,000 — SAR 36,35,041-802987 LYO 19,02,466.00878 you do not entrar $ 37,37,448.06262 Hobitoage gain - 37,39,448.06262 – 10,00,000 -) $ 27,32,448.06262 if you take a decimals - $ 27,32,448.06 ) conclusion are there forse Asbidrage is possible in route and poor't is † 27,32, 448.06. IS are love