Find out arbitrage gain of Kavya & Co. and Mullai & Co. separately. Kavya & Co. concentrates on geographical arbitrage, which consists of two currencies. Buying in one currency at lower rates and selling in a

CS Professional · Capital Commodity and Money Market · PYQS · June 2016
Find out arbitrage gain of Kavya & Co. and Mullai & Co. separately. Kavya & Co. concentrates on geographical arbitrage, which consists of two currencies. Buying in one currency at lower rates and selling in another currency at higher rates. This arbitrage gain can be attained either through telephone or fax messages. Kavya & Co. has ₹10 crore for this purpose. During that time rates of US $1 were: London: ₹47.5730 - ₹47.6100 Tokyo: ₹47.6350 - ₹47.6675 Mullai & Co. concentrates on triangular arbitrage, which consists of three currencies. One buying currency, one selling currency and another one is intermediary currency. Mullai & Co. wants to utilise US $1 million for this purpose. During that time rates were : US $1 : ₹48.3011 in Mumbai £1 : ₹77.1125 in London £1 : US $1.6231 in New York

Answer & Explanation:

Calculation of Arbitrage gain of Kavya & Co. Buy US $ from London Forex Market @ ₹47.6100 = ₹100 Million / 47.61 = US $2,100,399.075 Arbitrage = ₹100,052,509.90 - ₹100,000,000.00 = ₹52,509.90 Geographical arbitrage gain for Kavya & Co. Calculation of Arbitrage gain of Mullai & Co. Buy Indian Rupees ₹48.3011 * $1,000,000 = ₹48,301,100 Convert the Indian rupees into British £ = ₹48,301,100 / ₹77.1125 = £626,371.8592 Convert £ into at New York Market $ = £626,371.8592 * $1.6231 = US $1,016,664.164 Triangular arbitrage gain for Mullai & Co. = 1,016,664.164 - 1,000,000 = 16,664.164

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