Question
You are the CFO of a US manufacturer that exports to Thailand. You have received spot rate quotations from two banks in Thailand, Minzu Bank
You are the CFO of a US manufacturer that exports to Thailand. You have received spot rate quotations from two banks in Thailand, Minzu Bank and Sobat Bank, both located in Bangkok. The bid and ask prices of Thai baht for each bank are displayed in the table below:
Minzu Bank (THB/$) Sobat Bank (THB/$)
Bid $0.0224 $0.0228
Ask $0.0227 $0.0229
a) Are these direct quotes or indirect quotes for the US manufacturer? Are they quoted in European or American terms?
b) Determine whether there is an arbitrage opportunity. If there is, determine the profit you could generate by withdrawing $100,000 from the company's chequing account and engaging in arbitrage before the rates are adjusted.
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