Top 4 Two Point Arbitrage Questions You Need To Solve

TWO POINT ARBITRAGE:

Q.1) The buying rate for SFr spot in New York is $0.7884.

A corporate treasurer is going to buy SFr in Zurich at 1.2589 SFr per $ and sell them in     New York. Would you advise to go ahead on this transaction?

(Ans.: No. Loss 0.0075$ / $ OR Loss of 7483 $/1 million$)

Q.2) Two banks are quoting following US dollar rates:

Bank A:  47.7530/7610

Bank B:  47.7650/7730

Find out the arbitrage possibilities. Calculate it for 1 million USD.

(Ans.: 83.7503 $)

Q.3) In London, a dealer quotes:

DM per UK Pound Spot 3.5250/55.

¥ per UK Pound Spot 180.0080/181.0030.

What do you expect the ¥ per DM rate in Frankfurt?

If in Frankfurt you get a quote ¥ per DM spot 51.1530/51.2550, is there an arbitrage opportunity?

(Ans.: 51.0589 – 51.3484, No arbitrage opportunity)

Q.4) Two banks are quoting following US$ rates:

Bank A:  44.1025/44.2050

Bank B:  44.3075/44.4000

Find out arbitrage gain in Rupees per one mil US$ investment.

(Ans.: 2,318)