(a) Mercurius Capital, a Singapore-based investment holding company, has announced that the company will be diversifying into the grocery business in Malaysia with its acquisition of Songmart Holdings for SGD36 million. Songmart Holdings is an operator of mini markets, convenience stores and supermarkets in Malaysia. It currently has 12 such outlets across Malaysia.

(Source: The Edge Singapore; July 12, 2021)

Required:

In a floating rate system, discuss how foreign direct investments (FDI) would affect:

(i) Malaysias balance of payment; (4 marks)

(ii) Value of Malaysian Ringgit (MYR) against Singapore dollar (SGD). (4 marks)

(b) Assume that you have MYR1,000,000 and you are given these quotes by the banks:

Value of Canadian dollar (CAD) in Malaysian Ringgit (MYR) : 3.3500/3650

Value of US. Dollar (USD) in Malaysian Ringgit (MYR) : 4.1900/1960

Value of Canadian dollar (CAD) in US. Dollar (USD) : 0.8200/8390

Required:

Based on the above, is triangular arbitrage possible? If so, explain the steps to execute the triangular arbitrage and the arbitrage profit that you would earn. (12 marks)