Question
Kasri Ltd, a Tanzania import-export firm, learned that a particular type of rice grown in Tanzania, commonly known as Super rice is also grown in
Kasri Ltd, a Tanzania import-export firm, learned that a particular type of rice grown in Tanzania, commonly known as Super rice is also grown in Songaland. A ton of super rice is sold for Songaland Wan 50,000 while the same ton of rice is sold for TZS 1,200,000 in Tanzania. Shipping costs (Dar es Salaam to Songaland and vice versa) amount to US$ 90 per ton. Current exchange rates (mid-rates) among the three currencies are as follows: TZS/US$ TZS 1560/US$ TZS/Wan TZS 52/Wan Wan/US$ Wan 45/US$ The exchange rates are expected to be stable for the foreseeable future and the firm can import or export 100 tons of super rice at any given time. REQUIRED: (i) With supporting computations, show if the given information presents Kasri Ltd with arbitrage opportunity. (ii) If there is a commodity arbitrage opportunity, Show how Kasri Ltd can exploit it and the profit that it will make.
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