QUESTION1

The spot rate for the US dollar in Kuala Lumpur is quoted as below:

Buy($/MYR) 0.2202

Sell($/MYR) 0.2206

a) Is this a direct or indirect quote in Kuala Lumpur?

b) With an assumption that no transaction cost exists, what should be the outright quotation (buy & sell) in indirect term in New York?

c) Should the outright quotation in New York is as shown below while outright quotation in Kuala Lumpur remains as in (a), how would a foreign exchange trader react to earn arbitrage profit (if exists). Assume that the trader has an option to use RM100,000 for foreign exchange trading.

Buy($/MYR)0.2206

Sell($/MYR) 0.2210

No marks will be given without clearly state what rate, currency and where to buy and sell in your foreign exchange activity.