Question

1. Suppose you observe the following quotes for Thai baht (in Vietnamese dong) in Bangkok, for Czech koruna (in Vietnamese dong) in Ho Chi Minh City, and baht (in Czech koruna) in Prague. Bangkok: dong/baht 649.35062-656.89420 Ho Chi Minh City: dong/koruna 1038.6277 – 1041.6667 Prague: koruna/baht 0.5896 -0.6076 a. Demonstrate that an arbitrage opportunity exists by selecting any two markets and showing that the implied quote does not overlap the actual quote in the third market.

Answer 1

1. a. dong/ baht : 649.35062 / 656.89420 dong / Koverma : 1038.62 +7 041.6667 Korunal baht: 0.5896 / 0.6076 (Ginen) Actual kowena / bant: - 649.35062 1041.6667 / 656.89420 / 10 38.6277 = 0.62 34 / 0.6325 (Actual) between Actual and Gires, As there is a nismatch There is an Arbitrage oppurtunity b. Convert 154 baht to dong 154 X 649. 3506 kowena. = 95. 9999925 kowena. Connent dong to koverna 154 x 649. 350 62 1941.6667 Connent covena to dong, 157.99867 dong 154x 649.35062 10 ur. 6667x 0.6076 = (Answell) profit = 15.99867-154 = 3.99 867 baht.

Q2 won / bant baht | yuan. a. 30.9876 / 31.2500 5.0325/5.0794 163. 9344 / 165.8678 (Giren) to won / yuar mon yuan 30.9876 x 5.0325 / 31.2500 x 5.0794 (Actual) = ISS. au51/158. 73125 between Ginen & Actual As there is a mismatch there is an aebiteage oppurtunity. convert 6.10 Yuan to won 6-10 x 163-9 344 won Connect won to bant 6. 10x 16.9349 bant 31.25 Connext baht to yuan 6-10 x 163.4344 31.25x5.07 au = 6.2999 profit = 6.29996-10 = 0.1999 quan.